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The New ‘First Buy’ Scheme

March 23, 2011

The new First Buy scheme introduced in the budget today looks remarkably like the old Homebuy Direct scheme, except not quite so generous. Like Homebuy Direct it is to be targeted at new property only, and as with Homebuy Direct it is to be part-funded by housebuilders. The sum of money available is remarkably similar too – the previous scheme allocated £275million, and helped around 9,000 people; the newer version allocates £250million, and is aimed at helping 10,000. Unlike the previous scheme, though, the newer version requires the buyer to find 80% of the purchase price (5% as a cash deposit, and 75% through a mortgage), with the housebuilder and the government each contributing 10% in the form of an equity loan. The loan will be interest-free for the first 5 years; from year 6 an interest rate of 1.75% will be charged, with the rate index-linked thereafter. Although the administrative details aren’t yet clear, it’s probable that the loan will be repayable on sale as with Homebuy Direct and so the property will only remain in the grant-funded sector for a few years – and depending on the growth or otherwise of house prices, may actually be a good investment for the taxpayer.

The measure has been broadly welcomed by most in the industry, although all recognise that it will have limited impact; Shelter describe it as the equivalent of ‘a sticking plaster on a broken leg’, and the first time buyer campaign group Priced Out describe the Chancellor as ‘a shopkeeper trying to shift overpriced stock with a clever financing scheme’.

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