What is HomeBuy Direct?
HomeBuy Direct is a new shared equity scheme designed to clear completed or near-completed vacant properties that house builders have been unable to sell, by helping up to 10,000 First-Time Buyers into affordable home ownership. The scheme has been allocated £300m of Communities and Local Government Funding.
The scheme will be offered on specific new build properties brought forward by developers. Buyers will be offered an equity loan of up to 30 per cent of the purchase price, co-funded by Government and the developer.
Why have you introduced it?
We recognise the difficulties being faced by the house building industry and First Time Buyers in the current housing market, where the global supply of credit has led to the most severe market conditions since the early 1990s.
Evidence collected by the Regional Development Agencies (eg the recent survey of house builders undertaken by the South East England Development Agency - SEEDA), English Partnerships, The Home Builders Federation and others has demonstrated the impact on house builders - who have experienced a reduction in new reservations - and on First Time Buyers, who have struggled to raise the deposits they need in the tough mortgage market conditions.
HomeBuy Direct will respond to the current market conditions by:
- making more affordable homes available to First-Time Buyers who are in work but are currently priced out of the market, due to the higher cost of obtaining a mortgage or the need to provide a larger deposit
- providing a targeted boost to the housing market by stimulating more transactions, and
- helping to maintain the capacity of the house building industry to respond when market conditions improve. This will, in turn, help us to achieve our long-term housing supply targets.
How will it work?
Once launched, HomeBuy Direct will operate as follows:
- Developers will shortly be invited to submit bids to the Housing Corporation to provide HomeBuy Direct on selected properties and sites. The Corporation will assess the bids according to published criteria, and will have regard to regional housing strategies and any additional evidence submitted by the Regional Development Agencies about current housing market challenges.
- As with the other HomeBuy products, the 23 regional HomeBuy Agents will be the first point of contact for First Time Buyers who are interested in applying for the scheme.
- General eligibility for HomeBuy Direct will be the same as for the other HomeBuy products (i.e. households earning less than £60,000 who could not afford to buy a suitable property on the open market without assistance in the area where they live or work).
- Applicants will also be subject to an affordability check, designed to assess the size of equity share that they are able to afford and sustain.
- If applicants qualify for the scheme, they will be invited to choose one of the HomeBuy Direct properties brought forward by the developers.
- The purchaser will receive an equity loan of up to 30 per cent of the purchase price of the chosen property. The equity loan will be co-funded on equal terms by Government and by the developer supplying the property. The purchaser must contribute the remaining equity (a minimum of 70 per cent), through their mortgage (which could be obtained from any lender regulated by the Financial Services Authority) and any deposit.
- The equity loan will be free of charge to the purchaser for the first five years. From year six, a 3 per cent charge will be levied. From year ten onwards, the Bank of England Base Rate will be charged, increasing by RPI plus 0.5 per cent each year.
- Purchasers can redeem the equity loan in tranches, purchasing up to 100 per cent equity after their initial purchase by buying additional equity at the market rate.
- Buyers will be able to sell their HomeBuy Direct home on the open market. When they do so, they will repay the equity loan by way of a share of the sale proceeds. This repayment will be shared equally between Government and the developer.
- If the value of the property has increased by the point of sale, the buyer, the developer and Government will all share in this increase. If the value of the property has gone down, Government and the developer will only share the sale proceeds that are left over once the mortgage has been repaid. This provides the buyer with greater protection against negative equity.
Who will it help?
HomeBuy Direct will help:
- First-Time Buyers
The scheme is targeted at First-Time Buyers who cannot afford to buy a suitable property on the open market without assistance in the area where they live or work. This may be due to the higher cost of borrowing at present, or other factors. Depending on the bids we receive from developers, we expect to be able to help up to 10,000 First-Time Buyers through HomeBuy Direct.
- House builders
Current market conditions and lack of mortgage liquidity are impacting heavily on the house building industry. There is a long-term public interest in maintaining the capacity of the industry to respond with increased supply when the housing market recovers. The scheme will help participating house builders by enabling First Time Buyers to purchase their properties (by offering purchasers a better deal than they would otherwise have received).
- The housing market
First-Time Buyers are one of the key drivers of the housing market. By assisting First-Time Buyers to purchase, HomeBuy Direct will provide a targeted boost to the market. This will encourage developers to build more to meet the extra demand.
Who will be eligible?
General eligibility for the scheme is the same as for our other HomeBuy schemes (ie households earning less than £60,000 who could not afford to buy a suitable property on the open market without assistance).
Although the scheme is targeted at First-Time Buyers, HomeBuy Direct could also help people who have previously owned properties but are now unable to buy without assistance, for example in the case of relationship breakdowns or families who are over-crowded in their existing homes.
What kind of housing will be available under the scheme?
Developers will shortly be invited to submit bids to the Housing Corporation to offer HomeBuy Direct on selected properties and sites. The type of properties available under HomeBuy Direct will depend on the properties that are brought forward by developers.
Bids will be competitively assessed against criteria that will be published in due course. We expect to use the bid criteria to:
- prioritise stock that is particularly suitable for First-Time Buyers
- support the completion of near-complete properties, and
- incentivise house building.
When will the scheme be up and running?
Developers will be invited to bid for the scheme later in September 2008. We expect that the first HomeBuy Direct homes will be available to purchasers early in 2009.