From September 2011 first time buyers will be able to buy selected new build homes on a shared equity basis. The FirstBuy shared equity scheme will replace the Government’s previous shared equity scheme for buying new build first time buyer properties which was called HomeBuy Direct and which ended in January 2011.
With the FirstBuy shared equity scheme you do not share the ownership of the property with anyone else. When you sell, the equity is shared between you and the house-builders.
Shared equity enables a first time buyer with just 5% deposit to be the sole owner of the property (unlike joint ownership or shared ownership) by them taking out a FirstBuy equity loan which is offered equally between the house-builder and the Government. A 5% deposit is required and the buyer will also need a mortgage to pay for 75 or 80% and then the equity loan will make up the remaining 15 or 20%. The FirstBuy equity loan is payable on the sale of the property. No interest is payable on the equity loan for the first 5 years and after that point the interest will be nominal. It’s just 1.75% in the 6th year and 1% over inflation (RPI) after that. When you come to sell the property you will need to relinquish 15 or 20% of any gain in its value to the equity loan provider.
On the downside, you need to have a house-hold income of less than £60,000 a year and be a genuine first time buyer. Also, if your property goes down in value, you will still need to repay the mortgage and equity loan should you sell up. This scheme will also only be available on certain new build properties – selected by the builders.
First time buyers can find out more about which properties are available on this basis through their local HomeBuy Agent or new house-builders promoting the FirstBuy shared equity schemes. To apply for a shared equity mortgage, contact our mortgage advisors.
An alternative to FirstBuy is a privately offered shared appreciation mortgage which doesn’t have the limitations on it that the FirstBuy scheme does. Whilst this scheme charges no interest on the mortgage for the term of the mortgage it lays claim to 40% of any increase in equity when you come to sell up. To apply for one of these mortgages, contact one of our mortgage advisors.
You will need to work with a mortgage broker to find out the best shared equity mortgage deal for you. Request shared equity mortgage advice here.
Read more about shared equity and shared equity mortgages in our guides. Request a quote for first time buyer legal services.