Steps in the right di­rec­tion as key­work­ers plant a first foot on to the lad­der

A new gov­ern­ment­backed scheme gives some public­sec­tor em­ploy­ees a help­ing hand into the mar­ket, says Ross Clark – but not ev­ery­one is con­vinced it will work

The Daily Telegraph - Property - - Saving Grace -

The recorded mes­sage on the tele­phone of the Cat­a­lyst Hous­ing Group said it all: I was held in a queue and would be put through to an op­er­a­tor in “ap­prox­i­mately five min­utes and 40 sec­onds”. Cat­a­lyst is one of sev­eral hous­ing as­so­ci­a­tions han­dling the Gov­ern­ment’s new Open Mar­ket HomeBuy scheme, in­tro­duced ear­lier this month, ev­i­dently to con­sid­er­able in­ter­est.

The £230 mil­lion scheme prom­ises to help 20,000 frus­trated first-time buy­ers to get on the hous­ing lad­der through shared own­er­ship, ef­fec­tively buy­ing a prop­erty jointly with a hous­ing as­so­ci­a­tion and a bank or build­ing so­ci­ety.

There have been shared own­er­ship ini­tia­tives be­fore, but the dif­fer­ence this time is that the scheme does not in­volve just hous­ing as­so­ci­a­tion prop­er­ties. Prospec­tive ap­pli­cants, as­sum­ing they man­age to reach the end of the tele­phone queue, will be of­fered the chance to buy any home of their choice on the open mar­ket, with the aid of a 25 per cent “eq­uity loan”, which is in­ter­est-free but which the owner must re­pay at some stage, along with a share of the in­crease in the value of the prop­erty.

The main lim­i­ta­tion is that buy­ers must be able to raise a con­ven­tional mort­gage for 75 per cent of the value of the home and to prove that they would be un­able to buy a suit­able home with­out the 25 per cent loan.

An ear­lier ver­sion of the scheme has helped 10,000 “key work­ers” buy their first homes since it was in­tro­duced in 2001. Among them were Justin and Aimee Baker, both teach­ers, who bought a three-bed­room, 1970s house in Water­looville, Hamp­shire, with the aid of a £40,000 loan from the Thames Val­ley Hous­ing As­so­ci­a­tion.

“The largest mort­gage we could af­ford was £119,000,” says Justin, 28. “For that, all we could have af­forded was a flat, which we didn’t want be­cause Aimee was preg­nant. But with a £40,000 eq­uity loan we were able to buy a house with a gar­den. We plan ei­ther to ex­tend it or to move to a larger prop­erty in about five years’ time. Un­der the scheme, we will be able to take the eq­uity loan with us as long as we re­main in teach­ing and live within an hour of our work­place.”

While first-time buy­ers have re­acted with en­thu­si­asm to the scheme, not ev­ery­one is con­vinced that of­fer­ing bungs to first-time buy­ers is a sen­si­ble way to solve Bri­tain’s es­ca­lat­ing hous­ing cri­sis, which has seen the av­er­age house price rise to eight times the av­er­age salary. As Sue An­der­son of the Coun­cil of Mort­gage Lenders puts it: “What you don’t want is a scheme that makes the prob­lem worse fur­ther down the line by fu­elling house price in­fla­tion”.

Given that the scheme will ini­tially ben­e­fit only 20,000 buy­ers, the Gov­ern­ment might just get away with­out dis­tort­ing the mar­ket too much, she says. Then again, to se­lect just 20,000 lucky first-time buy­ers out of sev­eral mil­lion who would po­ten­tially like to buy a home is hardly go­ing to solve the prob­lem of lack of af­ford­abil­ity.

Hav­ing failed mis­er­ably to abate house price in­fla­tion over the past decade, the Gov­ern­ment has been driven to de­vise the Open Mar­ket HomeBuy scheme by a short­age of teach­ers and nurses and other pub­lic sec­tor “key work­ers” in ex­pen­sive parts of the coun­try. Any­one with toothache or en­gaged in the in­creas­ingly des­per­ate task of try­ing to find an out-of-hours GP, how­ever, will be puz­zled to dis­cover who counts as an “es­sen­tial” key worker el­i­gi­ble for the scheme: doc­tors and den­tists, for ex­am­ple, are ex­cluded, yet town plan­ners are in­cluded.

This time around, as last time, some vi­tal key work­ers will in­evitably miss out on help. While Justin Baker got his ap­pli­ca­tion form in just in time, a col­league — who, like Aimee, was preg­nant — just missed out. “It al­most caused a bit of re­sent­ment,” says Justin.

First-time buy­ers who do not qual­ify for the Open Mar­ket HomeBuy scheme will pay twice over for it: once, their taxes and again through the ex­tra money they must stump up to out­bid those who do qual­ify for the in­ter­est-free loans. But there is still a chance they will end up be­ing the lucky ones. Should the mar­ket rise, as­sisted buy­ers will have to pay a share of the in­crease in the value of their homes. Yet should the mar­ket fall, those buy­ers may still find them­selves hav­ing to re­pay half their eq­uity loan in full.

The Gov­ern­ment ini­tially wanted mort­gage lenders to take the risk of a fall­ing mar­ket, but the lenders de­clined. The Gov­ern­ment backed down, but even so only four lenders — Ad­van­tage, the Bank of Scot­land and the Na­tion­wide and York­shire build­ing so­ci­eties — signed up for the scheme. The oth­ers pre­sum­ably have mem­o­ries of the mid 1990s, when, long af­ter the prop­erty mar­ket had be­gun to re­cover from its early 1990s slump, there was one class of prop­erty that still sat gath­er­ing dust in es­tate agents’ win­dows — shared eq­uity prop­er­ties.

Open Mar­ket HomeBuy works as fol­lows. First, you must find out whether you are el­i­gi­ble. The scheme is open to many pub­lic sec­tor key work­ers, plus ex­ist­ing ten­ants of hous­ing as­so­ci­a­tions and coun­cils and peo­ple on hous­ing wait­ing lists.

But in all cases ap­pli­cants must be able to prove that they are un­able to af­ford a home on the open mar­ket oth­er­wise. You find a home you wish to buy for, say, £160,000. You must then raise a mort­gage – through one of the four lenders that have signed up for the scheme – for 75 per cent of this to­tal; that is, £120,000. The re­main­ing 25 per cent, or £40,000, is pro­vided in the form of an eq­uity loan. Half (£20,000) comes from a hous­ing as­so­ci­a­tion and the other half from the lender. For five years you pay no in­ter­est on the eq­uity loan. There­after, if you still own the prop­erty, the lender may ask you to pay in­ter­est on its £20,000 share of the loan. You are re­spon­si­ble for all ser­vice charges and main­te­nance.

When you sell the prop­erty, you must re­pay the £40,000 eq­uity loan. On top of this you must pay the hous­ing as­so­ci­a­tion and lender their share of the in­crease in value of the prop­erty since you bought it. If, for ex­am­ple, the prop­erty rises by 20 per cent in price, you must re­pay a to­tal of £48,000. If, on the other hand, the value of your prop­erty falls, the hous­ing as­so­ci­a­tion will write off some of the loan. The lender, on the other hand, may ask you to re­pay its share of the eq­uity loan in full. So if the prop­erty falls in value by 20 per cent, the hous­ing as­so­ci­a­tion would ask for £16,000 (£20,000 less 20 per cent) but the lender may still de­mand £20,000.

You can find out more by visit­ing the Hous­ing Cor­po­ra­tion’s web­site at www.hous­ing­


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