How does the First Buy mortgage scheme help single house buyers?
A new ‘shared equity’ scheme announced by the Government in 2011, First Buy has been set up to help 10,000 first-time buyers to buy a new-build home.
What does it mean? How does it work?
Loans of up to 20% of the property’s value are provided by the government and the housing developer in equal shares (10% each in the case of a 20% loan). The buyer pays a deposit of 5% and takes out a mortgage for the remaining share.
This means you may only need to take out a mortgage of 75% of the property’s value, giving you access to cheaper deals than if you had to borrow a higher proportion. There is no interest charged on the equity loan in the first five years but after that you pay a fee on the loan of 1.75%, then a rate pegged to the official RTPI plus 1% each year.
After 25 years you will need to pay back the loan in full. (But once you’ve owned your home for a year, you’ll have the option of repaying all or part of the loan).