First Time Buyer Scheme

As part of a number of measures to boost the property market, the government announced the introduction of  ‘FirstBuy’ a partly government funded scheme to help first time buyers on to the first rung of the housing ladder.

Under ‘FirstBuy the government will part fund the deposit required by a first time buyer towards the cost of their first home. The first time buyer will have to put down a 5% deposit from their own funds with the government and the developer each contributing a further 10% each. The FirstBuy contribution, will be by way of an equity loan, which will be interest free for the first five years and then at a low, below market, interest rate thereafter. The loan is repayable by the first time buyer on the sale of the property.

In order to qualify for the FirstBuy scheme, a first time buyer will need to be buying a newly built property and have a combined income of less than £60,000.00 per year. 

The FirstBuy scheme, is not a new concept coming after the previous governments similar scheme ‘HomeBuy’ which ended this autumn.

The reception to the announcement of the FirstBuy scheme has been variable. Most of the property professionals and market pundits have cautiously welcomed it for First time buyers.

Many have pointed out that the sector of the market at which it is aimed, being first time buyers, are generally those with the lowest income and we are due to see a rising rate of unemployment. First time buyers have been disproportionately affected by the shortage in mortgages with 46 billion pounds of first time buyer mortgages in 2007 being reduced to 27 billion in 2010. First time buyers have been traditionally viewed by the banks as posing the highest risk.

The general consensus is that the biggest issue for first time buyers is the lack of mortgage finance and the potential for ever decreasing income. Would the government be better addressing these issues for a more long term benefit to the property market?

The housing organisation ‘Shelter’ have described the scheme as a ‘sticking plaster on a broken leg’ – with only 1 in 100 first time buyers being able to take advantage of the scheme. The income cap is also criticised as it will disproportionately affect those older first time buyers looking for a property of more than two bedrooms for a growing family.

It is anticipated by the government that 10,000 first time buyers will be helped on to the housing ladder and 40,000 new jobs will be created in the building industry. The cost of the scheme to the government is anticipated to be £250 million. However, with the demand for housing growing for first time buyers at a rate of 230,000 per year the effect of the First Buy Scheme on the property market is likely to be questionable.

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