It is increasingly depressing news for would be first time house buyers in the UK, as they come to terms with the fact that buying a home of their own may be an impossible dream. House prices make home ownership out of reach for many unless they think outside the box. The government is backing several initiatives to help first time buyers out but they come with caveats. The New Build HomeBuy scheme is aimed at key workers and those with an annual income of less than £60,000, and offers a way onto the property ladder through shared ownership of newly built properties.
The scheme is only available to first time buyers as in the categories mentioned, and to those who cannot afford to buy a home in their area otherwise. Key workers are public sector workers and include teachers and nursery nurses, fire fighters, police, prison officers, social workers and probation officers.
The scheme is run by housing associations which own a share of the property on purchase. The buyer can usually purchase between 25%-75% of the property which requires a HomeBuy mortgage, and then pays rent to the housing association for the remaining share. The buyer can increase their own share until the property is owned outright by purchasing additional shares from the landlord at the valued cost of the property at that time. Increasing the share is termed ‘staircasing’.
The problem with this is that if the house soars in value you will pay the market value price for your additional share. Conversely if the house drops in value you would be able to buy additional shares at a discount to the original purchase price. There are few home owners who generally welcome negative equity but those who purchase through the New Build HomeBuy scheme will benefit greatly if they have additional funds to buy more shares at a time when the property has negative equity.
The rent paid is 3% of the value of the property owned by the housing association. Thus if the landlord owns 40% of the property valued at £34,000 the monthly rental would be £85.00. The fixed rental is charged at a lower rate than the current mortgage interest rate available through a HomeBuy mortgage. In addition there is an annual service charge which is applied on a monthly basis. It is important to understand that the newly built homes are leasehold rather than freehold, with leases held for a typical 99 years. Those interested in the scheme need to contact a HomeBuy Agent in their area to find out which properties are available.
Home buyers are free to sell the property but must give first right of refusal to the Housing Association for 21 years after owning the property outright. Those who sell whilst still renting a share of the property must allow the landlord the right to find a buyer.
The advantage of the scheme is it allows the first time buyer to make the initial step onto the property ladder at an affordable cost. The disadvantages are that the property is leasehold and has service charges; the buyer is obliged to use a specified mortgage; and it may be difficult to staircase if market values soar. Check with the Home Buy Agent what clauses are attached to the lease when selling the property on as it may be possible to have the lease resold at a 99 year term which would increase the properties saleability. Obviously the fewer years left on the least at the time of resale makes the property less attractive to other buyers.