Government housing schemes: the low down

In a bid to increase new-builds in the UK, which in 2009 and 2010 fell to an all-time low in peace time since the 1920s, the government introduced several affordable housing schemes to boost the property industry, such as NewBuy, FirstBuy, Right-to-Buy and shared ownership.
The intention of these schemes is for builders, investors and councils to increase the supply of both new-build and repurposed empty homes, to provide the opportunity for tenants to purchase their residencies and to breathe life back into the mortgage market, targeting those with smaller deposits.
The latest statistics on affordable housing starts and completions funded by the Homes and Communities Agency (HCA) and the Greater London Authority (GLA) were released recently and found that between April 1 and September 30 2012 there were 3,735 affordable housing starts on site delivered in England through programmes managed by the HCA and the GLA.
This represents an increase of 678 per cent compared to the 480 started in the same period of the previous year.
In the same six month period of 2012 there were 11,432 affordable housing completions delivered through programmes managed by the HCA and the GLA, a drop of 11 per cent compared to the 12,778 completed between the start of April and the end of September 2011.
NewBuy and MI New Home
The NewBuy scheme was introduced in March 2012 to create 100,000 home sales by 2015 by making it possible to buy a property with a deposit of 5 per cent.
About 4 per cent of house builder sales in the last 10 months have been through the NewBuy incentive, aimed at first-time buyers or those who already have a home but are looking to purchase another property with a small deposit.
To qualify participants must be purchasing a new build, i.e. a home being sold for the first time or for the first time in its current form, which must be priced at £500,000 or less.
The property must be your main residence, owned fully by you, built by a builder taking part in the scheme. NewBuy is currently available through six lenders; Aldermore, Barclays (Woolwich), Halifax, RBS, Santander and Nationwide as well as through 40 developers.
Borrowing rates start at 4.5 per cent and the Home Builders Federation is saying that 25,000 purchases is a more realistic number to achieve under the scheme by 2015, stating that over 2,000 homes have been reserved since its launch in March.
Aldermore Mortgages is new to the scheme, having signed up in the last few weeks, and managing director Charles Haresnape told What Mortgage he was surprised that more lenders have yet to sign up.
He said: “We have already had a number of developers sign up to the scheme with us, including Fairview, Barratt and Keepmoat Homes and there are a number of others set to join soon.
“In conversation with developers and government agencies, it seems NewBuy is taking off well, with more than 2,000 reservations made to date, a similar level of progression to FirstBuy. A target of 100,000 is obviously quite optimistic but any significant number of developments has to be positive.
“I’m surprised that smaller lenders haven’t joined up as it is obviously a government backed scheme.”
Aldermore is offering borrowing rates of 5.48 per cent on two and three-year fixed rate mortgages with a fee of £999.
A similar mortgage indemnity scheme has been set up in Scotland which aims to help up to 6,000 households gain access to new homes. The MI New Home is available on homes sold through participating builders up to £250,000. Supporting lenders at launch are the RBS and Nationwide, while Halifax/Bank of Scotland will offer mortgages through the scheme in the near future. So far, 16 house builders have signed up.
FirstBuy
The FirstBuy scheme is gathering momentum and has a larger share of the market than NewBuy, at 13 per cent in the last 12 months, although it has had a head-start on the new-build scheme of over a year.
According to the Home Builders Federation, the scheme, targeted at households earning less than £60,000 a year, has delivered 10,500 homes since its launch. The maximum full purchase price is £280,000.
Under FirstBuy a home purchaser need have just 5 per cent deposit with a 20 per cent equity mortgage provided by the teaming up of a developer and the government and a traditional mortgage making up the remaining 80 per cent.
The participant will pay no interest on the 20 per cent equity loan for the first five years and on the sixth year will be charged a fee of 1.75 per cent of the loan’s value. After this the fee increases each year based on the Retail Price Index plus 1 per cent.
If you decide to resell your home you will repay FirstBuy from the required percentage share of the sale.
The government is expected to provide an additional £210 million in January to deliver a further 16,000 homes.
Shared ownership
This project is run through housing associations and allows potential homeowners to buy a share of their property (between 25 per cent and 75 per cent) and pay rent on the remainder.
Shared ownership housing schemes are usually intended for those who would not otherwise be in a position to purchase their own home. To be eligible, your household must earn £60,000 a year or less and you must be a first-time buyer or no longer in a position to own your home.
When a new housing scheme is developed that includes shared-ownership homes for sale; housing associations will usually advertise shared ownership properties for sale. Those interested in shared ownership housing apply to the local authority or a housing association that offers shared ownership housing in their area as soon as possible.
You don’t have to find a new housing development to be able to buy a shared ownership property. When shared owners want to move home, their property will either be offered to the housing association to find a buyer, or will be advertised in the local estate agents.
Right-to-Buy
The Right-to-Buy scheme allows council or housing association tenants who have been in situ for five or more years the opportunity to purchase their home.
Introduced in 1980, the scheme offers discounts of 35 per cent of the value of the property plus one per cent per year of residency after five years, up to a maximum of 60 per cent.
Flats are discounted 50 per cent with 2 per cent extra each year until the discount reaches 70 per cent. The maximum discount allowed on any property under Right-to-Buy is £75,000.
You can apply to buy your council home if it’s your only or main home, it’s self-contained, you’re a secure tenant, and you’ve had a public sector landlord (e.g. a council, housing association or NHS trust) for five years; not necessarily five years in a row.
Paul Broadhead, head of mortgage policy at the Building Societies Association, advised What Mortgage readers to put a lot of thought and research in before deciding on what scheme, if any, is right for them.
“The main message I’d like to relay to government is to stop coming up with different schemes that confuse the consumer with terminology and to focus on clarifying the existing ones. The main intention of the affordable housing schemes is to provide potential homeowners with a smaller deposit the opportunity to purchase a property, but the qualifying criteria varies in each of the programmes.
“There is currently just one building society, Nationwide, signed up to NewBuy as it is a complicated process for the smaller societies to get involved in, but it is a good scheme and will make a difference by letting people know what’s out there for those with smaller deposits.
“With Right-to-Buy, they have increased the size of the discount so the government are dedicated to reinvigorating it with new locations to be introduced.
“The main message to anyone considering these government schemes is to assess whether it is in your best interest to take them up and to do plenty of research into what they can offer you.”