”The other, and perhaps more significant announcement, is the availability of an equity loan to any buyer of a new build home (not just first timers), only repayable when the home is sold. Worth up to 20% of the value of the home, eligibility for the loan will not be restricted by an income cap restraint but will only be available for homes below £600,000.”

So the government will take a 20% stake in the home value.
I think for many this could open up a viable way to move home, stay on a decent rate mortgage without having to find a huge deposit. It could potentially be an option for myself and our family, looking to move but currenly with little/no equity to do so.

Obviously wholly dependant on wanting to move to a new-build somewhere.

Interested to hear some of the collective STW wisdom and thoughts…

Is it 20% of resale you owe back or 20% of initial cost?

20% of the value which suggest to me whatever you sell at.

A great way to get folk to commit to a house more expensive than they can actually afford, thereby maintaining the (falsely) high value of existing property. It would be painful, but better in the long-term, if house prices were allowed to fall back to a level that folk could afford without such financial stimulii.

The govt would retain 20% of the resale value. If it goes up then great all round, if it goes down, well…

It’s not unlike what some housebuilders were/are doing themselves, only the housebuilders usually have a 10year max period for repayment of the 20%.

this will push new build house prices up

As said on Radio 4 this morning:

Thatcher brought in the “right to buy”, Osborne brings in the “right to default”…

On the face of it I’ve got a mate who could definitely benefit from this. Sold his last house – a bachelor pad – at a loss, as it was too small for him, his wife and young daughter, and they’re now renting and saving for a deposit. Combined income is probably about £70K, so they can afford the mortgage repayments on a house the size they want.

headfirst has it …. As said on Radio 4 this morning:

Thatcher brought in the “right to buy”, Osborne brings in the “right to default”…

the whole point in a deposit is to show you can budget but more importantly its so you have a vested interest in making the payments come hell or high water

dont know about you but i dont want to loose my deposit by defaulting on payments – if it was a 5% deposit then i probably wouldnt be so bothered if things were heading that way

the whole point in a deposit is to show you can budget

Not sure the presence of a deposit really demonstrates this, for the majority of first time buyers it just demonstrates that you have parents willing to help out (something like 65% of FTB’s get help from parents)

I thought the deposit was just the banks way of shifting risk onto you, the house would have to devalue by the deposit before they were in any danger of making a loss, hence higher rates for smaller deposits to copensate them for the higher risk of the deposit being wiped out.

dont know about you but i dont want to loose my deposit by defaulting on payments – if it was a 5% deposit then i probably wouldnt be so bothered if things were heading that way

You wouldn’t loose the deposit anyway, the bank just sells the house, takes what it’s owed and you get back the rest. In theory the same as if you’d just sold it, the ‘but’ is that they’d be selling in a hurry and not witing for the market to go up.

I don’t like the idea as new builds are always 10-20% higher priced against comparable older housing anyway. Good example is a new developemnt at the end of our road, new 2 bed 2 bath flats are £210k, our 3 bed 1 bath flat is arround £150k and has a much bigger kitchen, you could actualy make it a kitchen diner if you wanted, rather than the new build trend for a box room with microwave hob and fridge.

I haven’t looked at the detail but I would believe the govt contribution will only be a portion of the overall deposit. ie it says UP TO 20%.

The examples being cited are based on a 70% loan to value as these are currently teh only way to achieve the best terms and rates, ie 30% overall deposit. On a £200k house that would still mean having to find £20k of your own money, so it’s not like there would be no incentive to keep up the repayments as is being inferred.

So basically what its saying is that if i were to live in a house worth around £300k, i could theoretically move to a house worth 360k, without paying anymore on the mortgage?

What could possibly go wrong…?

actually you could move to a house priced at £425k and still pay a £300k mortgage (70%). But you’d need a £42.5k deposit contribution to do so 🙂

so folk are relying on either the increase in value OR a windfall to clear the 20% government loan ?

as i see this, it is a crap scheme.

House currently 100k you have a 10% deposit. so 90k mortgage. As of Jan 1 2014, estate agents and sellers ramp the price. house price jumps to 120k because you now have a 10% deposit, 20% government loan and you still have a 90k mortgage. Only difference is that the 3% the estate agent gets has gone up from 3k to 3.6k.

Or am i being a tad over cynical….

Trail Rat, You don’t ever have to clear the ‘loan’ if you don’t wish to. Only becomes a factor if you sell the house, at which point the govt take their 20% cut, whatever that may be. You take 80% of the value but then you only ever ‘bought’ 80% in the first place so there is a quid pro quo in that regard at least.

so folk are relying on either the increase in value OR a windfall to clear the 20% government loan ?

Wont it just be repaid in line with the mortgage portion? Interest free for the first five years then very competitive interest rates after that.

thereby maintaining the (falsely) high value of existing property.

How can the value of property be falsely high? Something’s worth whatever people are willing to pay for it, high or low.

So if a 1 bed flat sells for £360,000 that’s what it’s worth, regardless of how silly that may seem.

ah ok i understand now , all presuming that the new build isnt built so badly it doesnt last the 25 year term 😉

How can the value of property be falsely high? Something’s worth whatever people are willing to pay for it, high or low.

Because under the new scheme, the value of the home will be whatever people are willing (able) to pay for it +20% from the government.

People will end up in negative equity, especially as the scheme draws to a close.

Because under the new scheme, the value of the home will be whatever people are willing (able) to pay for it +20% from the government.

But if people buy for “able to pay plus +20%” then this is the market rate as that’s what they are willing to pay.

Negatively equity in the future is always a potential, no matter what price you buy at.

As of Jan 1 2014, estate agents and sellers ramp the price.

Yep. As demand exceeds supply, house prices are pretty much solely limited by what people can afford rather than any intrinsic value, so the more you can borrow, the higher prices go.

But if people buy for “able to pay plus +20%” then this is the market rate as that’s what they are willing to pay.

and hence the price is artificially inflated by 20%

Negatively equity in the future is always a potential, no matter what price you buy at.

correct. But negative equity is far more likley if the house is bought under a temporary scheme which bumps the original purchase price up by 20% and/or only applies when the house is brand new.

What possible reason is there for making this apply only to “New Build Homes”
What’s the justification?

What possible reason is there for making this apply only to “New Build Homes”
What’s the justification?

it isn’t just new build, there is something about secondhand houses as well.

but basically the theory is get more people in a position to buy buy getting more people in posession of a deposit. More houses can be sold, more get built the government looks better, more people in work etc etc.

Or protect bank balance sheets by keeping house prices up, keeping the bubble going and making people think there houses are worth more. Basically delaying any realignment of prices until Labour are in power.

It supports the construction industry

mrmo – Member

Or protect bank balance sheets by keeping house prices up, keeping the bubble going and making people think there houses are worth more. Basically delaying any realignment of prices until Labour are in power.

Ohh you cynic.

Treasury sources have stressed to the BBC that it was not designed for second homes but said that they would not be specifically excluded.

http://www.bbc.co.uk/news/uk-politics-21881007

Been looking to buy my first house for a while now.

This scheme would be good except that all the new build properties I’ve looked at have been small, cramped, noisy (you can hear people upstairs moving around), small gardens just big enough for a 6″x4″ shed, unusable garage (my Fiesta doesn’t fit in!!), poorly built, crammed in to a small plot with too many other houses and over-priced compare to existing housing stock.

No help to me, sorry.

Remember that free market idea thingy that someone had a while back….

Does that exclude the housing market and banking now too?

This may get interesting a couple of years down the line when folk start trying to flick on the houses they bought new at a government subsidised premium, and find that, secondhand, those houses have depreciated awfully due to no longer being eligible for the subsidy. And of course, there’s still the small matter of paying back the subsidy from the proceeds.

I wouldn’t use this to buy a house I wasn’t sure about living infor a looking time. And what’s supposed to happen when someone buys a flat on this scheme then decides they want to buy a house with their new partner/family? Pretty much stuck I’d have thought. Unless they can rent it out or convert to butler, when the government ends up supporting the rental market.

Or have I missed something?

The Help-to-Buy scheme is really, really daft. The last thing we need the Bank of England guaranteeing loans of people with 5% deposits. The second to last think we need is the Bank of England lending interest free money to people in order to buy new build homes!

This is gambling public money on the housing market. The banks aren’t willing to gamble, they think it’s too risky. Why then risk public money?

Do we need more money in the housing market? Absolutely not. This same money should be spent on building more houses not on hiking up the prices of the existing stock. That’s all that increasing the money supply into the housing market will do.

There was a nice question on the radio this morning, if you have 12 people chasing 10 houses, what’s the impact of this policy? All it does it increase everyone’s ability to pay by either borrowing money from BoE or having otherwise unavailable high loan to value guaranteed by BoE. Result – 10 houses sold for an even higher price than before, with more debt in the economy. Madness.

Totally daft policy.

Totally daft policy.

Did you expect anything else?

amazingly stupid idea, will only aggravate the housing shortage and expose the government/ consumers to more debt

the fact that they wont rule out 2nd homes either proves that the best they can come up with is another house price led boom

coupled with the new super low corporation tax

its like george is trying to emmulate another country that tried this…….