Paradigm believes demand for FirstBuy will be high but the scheme itself does not cater for a number of sub-first-time buyer groups such as those who earn over £60,000 and those who do not wish to buy a new-build property.
FirstBuy is a £250 million Government scheme to help first-time buyers and will be offered to those who are able to put down a 5% deposit; those individuals who qualify will be able to access an ‘equity loan’ of up to 20% of the value of the property which is being funded jointly by the Government and property developers.
The scheme is earmarked to start in September 2011 and means that first-time buyers can take out a 75% LTV mortgage for the reminder of the property value. Of the £250 million on offer, £210 million is destined for England, while Scotland, Wales and Northern Ireland will share the other £40 million.
Paradigm believes that the mortgage market must use the interest in FirstBuy as a new starting point to help many more individuals get onto the property ladder but suggests that a lack of innovative mortgage products may hold this back.
Paradigm is urging lenders to come up with a wide variety of first-time buyer loan solutions which will be available to all potential purchasers. It believes new innovative loans should also focus on the difficulties many first-time buyers have in securing a large enough deposit to get a mortgage.
It is also urging advisers to make sure they understand the variety of first-time buyer mortgage schemes that are currently available as they may be appropriate for those who are not eligible for FirstBuy.
Bob Hunt, chief executive of Paradigm Mortgage Services, commented: “While I welcome the FirstBuy announcement there will be many first-time buyers who will not be eligible for the scheme however their interest in buying their first home may well have increased because of the publicity around the announcement.
“Therefore, it is up to the industry to help and support those potential purchasers who are not eligible for FirstBuy but may be suitable for other first-time buy loans. The industry, and particularly lenders, should be using FirstBuy as a catalyst to develop new and innovative lending solutions for first-time buyers whilst also drawing attention to the options currently available such as assisted purchase, shared equity or the Bank of Mum and Dad.
“Currently, the first-time buyer loans available are relevant for only a small percentage of those who would like to get onto the property ladder. The Government has rightly identified the major problem for first-time buyers which is being able to save the deposit necessary to secure mortgage finance; we need more schemes within the wider market which also tackle this problem and it is up to lenders to get their thinking caps on and come up with solutions.
“The FirstBuy scheme is a positive but, given it is for new-builds only, the purchases made will not help develop any property chains whereas first-timers buying other properties are likely to be the start of a chain which could illicit five or six further property transactions ultimately delivering a considerable benefit to the wider market.
“The other important point to make regarding FirstBuy is that it is a limited pot of cash and one that is mostly focused on England. Many potential first-time buyers in Wales, Scotland and Northern Ireland will only have access to £40 million of FirstBuy funding so it is imperative the mortgage industry also helps provide a variety of solutions for those who may not be able to use the scheme.”
