The Government has announced plans for a new first-time buyer scheme offering eligible purchasers in England the chance to buy a qualifying new-build home with a deposit of just 2.5% and a Government-backed equity loan worth up to 20% of the property's value.
The “Your First Home” scheme effectively revives the equity-loan model previously used under Help to Buy and is due to be formally confirmed at the Budget on 28 October.
The Government says the policy is intended to help people who can afford mortgage repayments but struggle to save a large deposit while paying rent.
Buyers could need deposit of just 2.5%
Under the proposed structure, an eligible first-time buyer would provide a minimum 2.5% deposit.
The Government would provide an equity loan worth up to 20% of the value of the qualifying new-build property, leaving the buyer to secure a mortgage for the remaining amount.
For a purchase using the maximum 20% equity loan and minimum deposit, that would ordinarily leave 77.5% of the purchase price to be financed through the buyer's mortgage.
Government loan interest-free for first five years
The Government-backed equity loan is expected to be interest-free for the first five years.
It is important that the support is not described as a taxpayer grant. The Government will acquire an equity interest linked to the property's value and the loan must ultimately be repaid under the terms of the scheme.
The Government says repayment will be required when the property is sold, within 25 years, or in accordance with relevant mortgage and scheme conditions.
Scheme limited to qualifying new-build homes
Your First Home will apply to qualifying new-build properties in England rather than homes across the entire housing market.
The scheme will also include household-income limits and property-price caps, with the Government seeking to target support at buyers who would otherwise struggle to purchase their first home.
Full thresholds and detailed eligibility rules are expected to be published alongside the formal Budget announcement.
Developers expected to contribute
Housebuilders participating in the scheme will be required to contribute towards its costs.
Ministers also hope that increasing demand specifically for new-build homes will encourage developers to increase construction.
The Government has presented the policy as both a home-ownership measure and a mechanism for supporting additional housebuilding.
Burnham targets buyers without ‘bank of mum and dad’
Prime Minister Andy Burnham has linked the scheme to the difficulties faced by prospective buyers who cannot rely on financial help from their families.
The Government argues that reducing the minimum deposit requirement could allow more renters to move into home ownership without waiting years to accumulate a conventional deposit.
Full details due at October Budget
Although the central structure of the scheme has been announced, important details remain outstanding, including precise income limits, regional or local property-price caps, the overall cost to the Exchequer and the implementation timetable.
The confirmed proposal is therefore a 2.5% minimum deposit for eligible first-time buyers purchasing qualifying new-build homes, supported by a Government equity loan of up to 20%, with the detailed rules due to be set out at the 28 October Budget.