Developers are starting to dangle carrots at prospective first time buyers who have problems raising the deposit necessary to qualify for a contractor mortgage.
Since the start of the global economic downturn, mortgage lending institutions have been reluctant to lend money to purchasers of new build properties. This is not necessarily surprising when you consider that developers were artificially inflating the price of new builds.
The situation has now changed and builders and lenders have been working together to restore confidence. But the recovery is slow and registrations for new builds dropped by 12% last month when compared to September’s figure.
The government backed First Buy scheme came into being last month. It is hoped that this scheme will kick start the housing market and make home ownership much more affordable to first time buyers.
Borrowers will be able to get a mortgage for a Barratt home with just 4% deposit, whilst other builders will require 5%. The buyer will need to find 80% of the purchase price, but the remaining 20% will be subsidised by the government and the developer. This subsidy will come in the form of a 5-year interest free loan. However, when the loan matures, a charge of 1.75% on the value of the 20% equity is levied.
Some developers are also offering a shared equity scheme whereby the purchaser puts up 85% and they supply the other 15% for a fixed term of either 5 or 10 years. The 15% does have to be repaid at the end of the term, but hopefully by that time there will be enough equity in the property to get a remortgage.
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