The Your First Home scheme is a new equity loan scheme in England, helping support more people into homeownership
The new first-time buyer scheme is expected to support 2.5% deposits, with a 20% government-backed equity loan, making it easier for first-time buyers to purchase a property.
The loan will also have an initial interest-free period, saving money for buyers per month compared to other mortgages. Full details will be confirmed as part of the Autumn Budget.
More people buying means more homes built
The deposit is the key barrier to many first-time buyers, and this scheme will help to build it. It will allow buyers to pay 2.5% deposits on new build homes, and the government will cover 20% of the mortgage, leaving a much smaller mortgage for the buyer.
For example, in purchasing a home worth £200,000, the buyer will pay £5,000 in the deposit, the government will loan £40,000, leaving the mortgage to be paid at £155,000.
This scheme will be hailed by some in the industry, as high prices have curbed homebuilding activity. In May last year, the average house price for a first-time buyer rose to £250,000, a rise of 7.7% since the last year, and the average property value in the UK hit £271,000.
This meant that first time buyer prices were just £21,000 cheaper than most houses.
This locked more people out from buying a home, making homes harder to sell, and in turn, meaning fewer profits for housing developers and less funds for the next development, maintain staff, taking on apprentices, etc.
At the time, the chief executive of the National Federation of Builders, said: “First time buyer lending schemes are absolutely vital to buyers and builders, but without a huge increase in supply, there is a risk that buyers overpay for homes. This is why Labour’s commitment to 300,000 homes a year is so important.
“Demand led policies that are unsupported by supply strategies create unintended consequences, such as fuelling house price rises and risking negative equity on certain home types, like apartments, because premiums were paid to get on the housing ladder rather than to purchase the appropriate homes.”
In November last year, Emma Ramell, the director of external affairs at the Home Builders Federation (HBF), wrote for PBC Today to discuss why first-time buyer support would be necessary, writing: “Without a realistic market for new homes, investment in new sites and labour is being limited. To overcome these challenges, the government could provide assistance for first-time buyers at the Budget in the form of a new equity loan scheme part-funded by home builders.
“Not only would this generate positive outcomes for housing supply, home ownership and the wider economy by transforming demand into effective demand for new homes, but it would also give builders the confidence to invest for the long-term.”
Read Emma’s full thoughts on why the scheme will be beneficial here.
“A welcome boost for the industry.”
Of the new first-time buyer scheme, Paul Turner, CEO of the National House Building Council (NHBC), said: “News from Andy Burnham and Angela Rayner of a new equity loan scheme to help first-time buyers purchase new build homes is a welcome boost for the industry.
“The security of owning a high-quality, safe and sustainable home has for too long been out of reach for many hard-working people. It is reassuring that government has recognised this with material support that will help get people on the first rung of the housing ladder.
“But there is no one single solution to the housing challenge. Supply must also be addressed through accelerated planning reform and the easing of unnecessary regulatory burdens. What’s more it’s vital to keep focus on maintaining quality in the construction of new homes.”
Michael Clifford, commercial director at District & County Investments, said: “From a developer’s perspective, anything that helps more first-time buyers overcome the deposit barrier and thus enabling more to buy a new-build home has the potential to support both confidence and housing delivery with developers which should be welcomed.
“One of the challenges developers face at the moment is not necessarily a lack of underlying demand for good-quality housing, but uncertainty around sales rates and how quickly buyers can complete. If this scheme increases the pool of buyers able to purchase a new-build property, that should give developers greater confidence that there will be customers for the homes they are building.
“The details will be important, particularly around the property price caps, eligibility criteria, developer contribution and how quickly the scheme can be implemented. However, there is a clear link between supporting demand and supporting supply and this is a welcome incentive to assist with sales of existing stock, allowing developers to then move to the next project. There are risks associated with this type of assistance, which we have previously seen (i.e., reductions in demand at levels slightly over the max price threshold), but on balance this is very welcome news. If developers have greater confidence that homes will sell, it becomes easier to commit capital to new sites and move schemes forward.”
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