First-time buyers hit as £60m aid fund dries up

Published on Saturday 28 November 2009 12:22

THE hopes of people desperate to get a first foot on the housing ladder have been dashed after the Scottish Government admitted it had been overwhelmed by applications for its Open Market Shared Equity Scheme, and the money has now gone, Scotland on Sunday can reveal.

With typical house prices in Edinburgh at more than 200,000 and property in other Scottish cities not far behind, it can seem almost impossible for young people new to the market to get a home of their own.

Anyone earning around 20,000 can normally borrow 60,000 to 80,000. Even with a decent deposit, it won't bring them anywhere close to clinching a desirable property.

In order to help, the then Scottish Executive explored the potential of shared equity arrangements, which allowed the low-paid to secure any home on the open market they wanted to buy within a threshold price, by picking up part of the mortgage bill. It began in Edinburgh and the Lothians in 2005, and that year 50 buyers were helped, with 523 the following year and 654 in 2007/8.

After reviewing the results, the Scottish Government decided to expand the scheme across Scotland in January last year, and set aside 60million for this financial year.

However, by little more than half-way through the year, it had received 3,300 applications for an estimated 1,500 payments (of around 40,000). The government has admitted all available money has now been allocated, and officials have written to consultants and others involved advising them that further applications should not be acted upon this year.

Punter Southall mortgage broker John Postlethwaite said he wasn't surprised to hear the money had gone. He said: "It was a very good scheme, and very valuable to those who would otherwise struggle to get a big enough mortgage.

"The government was effectively offering an interest-free loan for part of the mortgage."

Ministers are now examining whether a new raft of money can be allotted to help more first-time buyers next financial year, 2010-11.

The scheme worked by helping new buyers who could raise between 60 and 80 per cent of the value of a home, by topping up their finances by the outstanding amount. The government recouped the money when the property was sold by taking a share of proceeds.

This effectively allowed the new homeowner to enjoy an interest-free loan during the lifetime of the original mortgage.

Shared equity schemes are not new, and have long been offered by housing associations and developers. However, the Scottish Executive's pilot differed from such schemes, which require homebuyers to pay their mortgages and a "rent" on the bit of the property they don't technically own. Currently, this would be the equivalent of a 2.75 per cent charge.

Although the scheme is the brainchild of the government, its operation is devolved to local bodies such as housing associations. In Edinburgh, it is operated through Link Homes. To apply, applicants either consult a financial adviser, or complete the application form from the government's website, www.scot land.gov.uk/Topics/Built-Environ ment/Housing/BuyingSelling/lift.

Once an application is accepted, the money is earmarked and the novice buyers have three months to find a suitable property.

But all money for this year has now been allocated and new applications have been stonewalled since the summer.

Even if relaunched in the next financial year, new buyers still risk being unable to make an application before the money runs out again.

Not all areas have run out of money, though. Help is still available in the Western Isles and Shetlands. It is also possible that not all the cash earmarked will be spent, meaning it may again become available this year.

Any remaining cash will be channelled to priority groups under the scheme, includingthe disabled, ex-service personnel and anyone living in social housing. This latter group is given priority to help free up rental property for other vulnerable people.

Novice buyers may be well advised to consider new-build shared ownership schemes run by housing associations instead. This will, of course, restrict property choice and will also be more expensive due to the notional rent charged on the proportion of the property paid for by the homeowner.

Postlethwaite said: "The advantage of a housing association shared ownership scheme is that it is not too difficult to get a mortgage on these properties."

An alternative would be a shared equity scheme run by a developer. Novice buyers purchase part of the property with the right, or sometimes the obligation, to buy the rest at a later date, perhaps within five years.

But these are becoming problematic. Postlethwaite said: "It can be very difficult to get a mortgage on these developments as lenders are becoming sceptical about new build. There are some banks and building societies which will advance money on them, but they are fewer in number and may well charge more.

"If that is the case you may end up paying more for your home loan than with a straightforward deal, which rather defeats the object."

If opting for a new-build shared ownership or equity deal either with a housing association or developer, it is vital to seek legal advice and read the small print carefully. The deals often require that the developer or housing association is repaid in full when the property is sold. In a time of falling prices, this can leave the buyer trapped by negative equity

, having to make up the shortfall in the sale price to pay off the contract. Many will not be able to do this and will, therefore, be unable to move.

After that, homebuyers are back to the traditional solutions. They can buy with a friend, get a bigger deposit, or ask their family to help out with an interest-free loan or guarantee.

There are some first-time buyer flats in less popular areas starting at around 60,000-80,000, although many are former social housing. Postlethwaite added: "For many, the only realistic option is to rent."

NHS worker 'not a priority' for home help

PAUL Logan spends his working day making synthetic limbs, giving hope to victims of accidents and disability that they can lead an active life.

The orthotic technician loves his job at the Midlothian Innovation Centre, even though as an NHS employee he only earns around 20,000 a year.

Buying a home of his own has never been at the top of his to-do list. But after years of renting with friends, Paul recently found himself living back home with his parents in Edinburgh. At the age of 33, both he and they thought the time had come for him to buy a property of his own.

Paul said: "I went to see a financial adviser, and she came up with quite a big sum that I could borrow, that would get me a flat, but the payments were too huge. I wasn't happy about getting that much in debt."

Then Paul heard about the Scottish Government's open market option scheme, which seemed an answer to his prayers, so he applied last June.

He said: "It seemed perfect, because you are not restricted to what you can buy, and the scheme promises a 12-week turnaround. But I am still waiting, wondering what is going on."

The only notification Paul has received has been a letter informing him that he was not in a priority group, and that priority would be given to those in social housing, the disabled and ex-servicemen.

However, Scotland on Sunday's inquiries have revealed that the money has run out.

Paul's best hope is that the government renews the scheme in April, and gives it a big boost.

He said: "I'm only looking for a modest starter flat, but unless I'm prepared to take on a massive loan, even that looks out of reach."