Budget News 2011: First-time buyers to get loans

25th Mar 2011

At least 10,000 first-time buyers will be eligible for the Firstbuy scheme, announced by Chancellor George Osborne.  The House Builders Federation welcomed the move and said it would have economic and social benefits.  However, the £250m government pledge to the scheme will only last for one year, the Budget documents reveal and lenders described the help as "modest".  This would be funded by the levy on banks, Mr Osborne said. Some £210m will be spent in England, with the other £40m in Wales, Scotland and Northern Ireland.

Struggle

First-time buyers have been struggling to get a foot on the housing ladder.  The latest figures from the Financial Services Authority (FSA) showed that they required a large deposit.  The City regulator said that only just over 2% of new mortgage lending in the final three months of 2010 was to those who could offer a small deposit of less than 10% of a home's value.  Lenders have said this has been the result of a squeeze on the amounts available to lend, and a lack of appetite from new borrowers.
Figures from the British Bankers' Association (BBA) said the number of new mortgages its members had approved for homebuyers stood at 29,923 in February.  So the new scheme would be limited to just a third of one month's approvals - although first-time buyers are key to getting the property market moving.

Shared cost

The Firstbuy scheme would see the government and house builders offer loan help for first-time buyers purchasing a newly-built home.  Buyers must save a deposit worth 5% of their property's value, with the government and housebuilders putting up 10% each through an equity loan, enabling people to qualify for 75% loan-to-value mortgage.  The equity loan would be interest-free for the first five years, with interest charged at 1.75% in year six, and at inflation plus 1% thereafter. 

In a separate announcement, the Support for Mortgage Interest scheme, which is aimed at subsidising the interest payments of mortgage holders across the UK who become unemployed, will be extended for another year from January.

For more information contact Chris Ross, Solicitor, on 0191 3840 840 or chrisr@bhplaw.co.uk