It was big news for first time buyers back in 2005 when Gordon Brown announced the new "Open Market Homebuy" mortgage scheme specifically for first-time buyers. Details were thin on the ground, but the message was clear, first time buyers would soon be receiving some support from the government.
The scheme works by allowing a first time buyer to buy 75% of a property, so they only need to get a mortgage for 75% of the value, and they also wouldn't need to pay a deposit. The government and the mortgage lender would own the other 25%, and the borrower could either buy the other 25%, or part of it, as and when, or if the borrower decided not to buy it, it would simply go back to the mortgage lender and government when the property is sold.
The scheme would open doors for first time buyers everywhere, who find themselves either only able to afford the smallest, cheapest properties, or many who can't afford anything at all! It's a particularly big problem for borrowers in London.
However, we can see a number of flaws in the scheme, and we have listed them here:
· Borrowers on the scheme will have to pay more interest – it was recently announced that an extra 1% charge would be levied on top of the usual interest rate.
· No-one knows what the borrowing levels will be, i.e. will it be three times your salary, four times, five times? The government hasn't given any details so first time buyers don't have a clue what they can aim for.
· Not all of the UK's lenders have signed up for the scheme, in fact, there are only three on board at the moment: Nationwide, Yorkshire Building Society and Halifax. For some reason, the other lenders are not finding it an attractive prospect.
· The Government has estimated that 4,000 borrowers will benefit from the scheme. Well our sums say that on average, 361,000 properties are bought each year by first time buyers. If the government is only planning to help out just over 1% of first time buyers, then there must be some pretty tough criteria to qualify!
· We have no idea what the criteria is – in the light of the government only looking to help 4,000 buyers a year, then we assume that first time buyers must have to meet some particular criteria. No announcements have been made, even though the scheme is supposed to be introduced later this year.
· Due to commence in October 2006 – we have no details about this potentially life changing scheme. Six months is a long time in the housing market, that's another £3,000 in rent to some people, should they wait just in case?
We think that the Open Market Homebuy mortgage scheme is going to disappoint a lot of first time buyers. Not only will they have to pay over the odds on interest, but they still don't know if they'll even be eligible for the scheme. We recommend ignoring it altogether, and getting a decent broker on the case to find the most competitive mortgage deal to fit your needs.
Michael Grove, shadow housing minister has only deepened our concerns by commenting to the Sunday Telegraph that not enough mortgage lenders are on board. To attract them, he wants to make the Homebuy scheme easier and cheaper for them. So they industry doesn't seem to be that interested either! We are wondering why the government is being so reticent on the details, and if only 1% of first time buyers will be eligible, why give the impression that it is such a big deal? We are interested in hearing further announcements, but be prepared to be disappointed.