Will home ownership become a reality for first time buyers again?

6 November 2012

The Government's pledge to make becoming a home owner for the first time a reality may allow deposits to be cut to as little as 5%, making it easier for first time buyers to secure a mortgage. At present deposits for first time buyers can be up to 20%, preventing many from entering the housing market. People are often unable to get their foot on the property ladder until they reach their mid thirties as the amount required for a deposit can often be more than their yearly salary after tax. Under the proposed scheme the banks will lend 95% mortgages to people buying new build properties with the developer injecting 3.5% of the value of the home into a separate ring-fenced fund. The developer's fund will exist for seven years and if there has been no mortgage default during that time then the house builder can take that cash back. If during the first seven years a house is repossessed and sold for less than the mortgage amount, the lender will be entitled to claim up to 95 per cent of its losses from the fund. If the developer's fund has insufficient resources then the banks can call on the Government to contribute 5.5 per cent of the value of each property in the fund. The worry with this scheme is that the taxpayer could become liable for losses on repossessed homes if the value of property continues to fall. However Mr Shapps, Housing Minister, said that public money would not be put at "unreasonable risk" by this initiative. Not everyone supports this scheme. David Miles, Member of the Bank of England's Monetary Policy Committee, has suggested that it would be better for people to pay a larger deposit to avoid getting into the predicament of having a mortgage which they cannot afford. He believes that with mortgage companies taking a cautious approach to lending there will be fewer borrowers getting into financial difficulty, therefore there will be fewer repossessions and less price volatility. The Government's scheme has an additional motive – to boost the construction industry. The construction market has been depressed in the current economic climate as people cannot afford to purchase the new homes being built. As a result construction sites have lain dormant. As well as the home buyers scheme the Government has published details of a £400m Get Britain Building scheme to help projects that were put on hold due to lack of funding. It is hoped that this funding will lead to the building of around 16,000 new homes, 3,200 of which should be affordable homes. It is thought this should help create around 32,000 jobs, supporting those who work in the industry. If you are looking to purchase your first home it is worthwhile keeping yourself updated on the progress of this Government scheme. Should you be in a position to purchase your first home then the specialist residential conveyancing team at Gepp & Sons Solicitors can guide you through the legal process. Our friendly and helpful team will help take the stress out of this important transaction with our quick, affordable and tailored approach. For more information please complete our Enquiry Form contact us on 01245 493939 or mail@gepp.co.uk