Chancellor George Osborne has confirmed plans to help first time buyers (FTBs) get on the property ladder with a £250 million injection.
The Government and property developers will jointly fund an equity loan to pay for a deposit under a shared equity scheme called Firstbuy to help 10,000 FTBs buy a new build property. The average FTB deposit is 30% which is a whopping £45,000 on a typical £150,000 property.
Households that earn no more than £60,000 a year that can raise a deposit of at least 5% of the property price may qualify for the loan of up to 20% of the value (see the Remortgage Guide and the Mortgage Guide).
The loan will be interest-free for a five years. In year six interest will be added at 1.75% on the original stake. In year seven and beyond the rate will be the Retail Prices Index inflation measure plus 1%.
It must be paid back when the property is sold or after 25 years, whichever is sooner.
When a homeowner pays any money back, be that in part or in full, the property will be revalued.
If it has gone up in value the debt will be higher as the owner will owe the same percentage of the property value as they were given as a loan.
Say they get a £20,000 loan (20%) for a £100,000 house which is valued at £120,000 when sold the loan debt will rise to £24,000.
The Firstbuy scheme will be open to homebuyers in a few months once the Government has got the necessary support from builders. The first properties are likely to be available by September.
Meanwhile, the support for mortgage interest scheme will definitely be extended for another year until January 2013.
It is paid to help those on certain benefits to cover their mortgage interest. This currently assumes the interest rate you pay is equivalent to the Bank of England's average mortgage rate.
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