News: FTBs warned over bottom trawling HomeBuy

Wed, 02 May 07

Firstrung has urged prospective first-time buyers to carefully consider the pitfalls of the Government's HomeBuy initiative...

With the limited uptake of the Social Homebuy Scheme, Firstrung has urged all prospective first-time buyers to carefully consider the pitfalls of all schemes under the umbrella of Homebuy government initiatives, as the low up take could prove the schemes are unpopular with first time buyers and moreover fail to deliver value for money.

Paul Holmes operations director, said:

"By its own admission the Government accepts the scheme to date has failed. At the last count there were only 33 first time buyers helped onto the first rung of the property ladder by the social homebuy initiative and less than 600 applications in the pipeline. Given the volume of publicity and the marketing money gifted towards the scheme perhaps it's time for the Government and homebuy agents to re-assess the benefits for the first time buyer".

Holmes suggests rather than look to lower the permitted level of equity/ownership - which is now down from 25% to 10%; it is now time to finally question whether or not the social homebuy scheme should be scrapped.

"Recently the public accounts committee have criticised the overall waste involved in the £500 mil homebuy scheme. The homebuy scheme is littered with complicated qualification criteria, so much so that many of our mortgage applicants now believe we (as introducers to lenders) simply sort out the red tape on their behalf. The public are being left dazed and confused by what is in fact on offer. Some applicants actually apply to us asking for further information on how the Government gives them 75% of a house - for free!".

Still a long way from outright ownership

Holmes stated:

"On all homebuy schemes you still have the responsibilities of a homeowner, but the home does not belong to you. You would only own the part of the property you finance, as low as 10%, but could be responsible for all of the renovation and upkeep costs.

"You may have to ask for permission from the housing association regarding any major redecoration or home improvement. On the plus side though, any increase in the value of the property through home improvement goes to you. However, any profit on outright sale may have to be shared.

"With prices on new property falling by on average 10K last year, (according to the latest smartnewhomes research), your 10% equitable stake could disappear immediately with a modest price correction.

Should your chosen scheme not appreciate in value over the short term this could seriously impact on your ambitions to gain further equity in the future. If you move within the first five years you'll also be forced to pay back some, or all of the initial discount".

Schemes cannot replace ownership

Holmes concluded:

"Buyers under the scheme should have their eyes wide open, these homebuy initiatives are not a replacement for ownership, neither should they be considered a 'half way house' between rental and ownership. With equitable stakes as low as 10% we would urge applicants to examine just how viable they are.

You could find you are locked into a scheme in a 'half-hearted' fashion for some time just as most market commentators are predicting house prices have peaked, which could result in more favourable conditions finally returning for prospective first time buyers.

"Instead of owning a slice of the action homebuyers could be left with crumbs if the market corrects substantially".

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