When Chancellor George Osborne sat down at the end of his budget speech a week ago, first time buyers looking to get on the first rung of the property ladder had some cause for cautious optimism. Within seconds of his first utterance of the new “Firstbuy” scheme, prospective home buyers were probably already dreaming of doing things that come naturally to so many of us. Things like organising household insurance, home loans and mortgage insurance. Lucky them!

Manageable deposit

The “Firstbuy” scheme promises to allow first time buyers a much easier route to owning their home. Instead of the average £25,000 deposit required to secure a mortgage at the moment, the scheme will demand just a 5% deposit, which will bring the £25,000 down to around £6,000-£7,000 a more manageable figure altogether. The scheme does have several qualification criteria wrapped around it though.

Equity loan will bridge the gap

First of all the “Firstbuy” option will only apply to new builds on specifically named projects. The scheme will allow the homebuyers to put down a 5% deposit and take out a loan to value mortgage for another 75% of the property cost. The remaining 20% will be loaned to the couple in a way not yet actually specified but will probably be a joint equity loan cobbled together by the builder and the Government. The equity loan will be interest free for the first 5 years and after that will gradually start to attract interest repayments.

The loan will have to be paid back when the house is eventually sold and it will not be a precise figure, but the same percentage of the sale price that the property owners borrowed to make the purchase. So if the homeowners took out a 20% equity loan they will pay back 20% of the sale price. This means of course, that if they make a profit on the sale then the Government/builder will get a slice of the profit too.

Experts split, but hopefuls won’t be

Experts are split over the benefits of the new scheme with some pointing out it is not actually as good as Labours “Homebuy” scheme launched 3 years ago. Whatever the experts think it is a safe bet that there will be plenty of takers for the scheme when it is launched later this year. Unfortunately the £210,000 million earmarked for “Firstbuy” will probably help only about 10,000 homebuyers. Many will be pleased to grasp the opportunity of looking at home insurance comparison sites for the first time but I can assure them the pleasure will soon dim!