FirstBuy scheme - advice needed - total newbie

czerniacha

Hi there,

I do really know nothing(or very little) about mortgages(yet!:p) but I'd like some advice please

I have recently seen an ad in a paper which made me aware of the FirstBuy scheme... The main reason I'm interested in it is because of the 5% deposit needed...

So now where do I start?

Oh maybe a bit about me/us first... Me(27) and my 31 yo bf(5 years together, 6 in the UK) are renting a 1 bed flat in West London at the moment(13 months now), we were house sharing before... We pay 1000gbp rent, my salary is just above 30k, his is just below that... I never did a credit score check but I don't think there would be anything horrible there(I might be wrong tho!)

Now I'm thinking I need to contact the FirstBuy scheme people first to check if I/we would be approved for it? Would I stand a better chance doing it by myself?

The property I was thinking about is in East London, new 1 bed flat at 150000gbp. I can't really fork out more then the 5% for deposit(are there any other substantial fees connected with the whole process incl. getting a mortgage?) and the whole point is to pay less then the 1000gbp/month we are now...

What exactly is the equity loan? Is it better to pay it off monthly(after the first 5 years) or after sale of the property(I'm thinking 25 years)?

Now the dreaded mortgage... Do I just go to my bank and ask if I can get it or is it better to do some 'preparations' first? And again do I try it by myself or a joint one with bf?

And a final question: does the scheme really end in March next year like I read somewhere?

Sorry if I sound stupid

And thank you in advance for any help

kingstreet

Firstbuy is shared equity. You buy the whole of the property and a developer or a registered social landlord (RSL) lends you the extra you need on top of your mortgage and deposit. When you sell, you're selling all your home, not just a portion of it.

Upside - you get a bigger property than you would otherwise be able to afford, or you can buy now without having to wait longer to save a deposit.

You also benefit from a better mortgage rate. Instead of a 95% mortgage, at a lousy rate, the equity loan means a loan to value of 80% and the lower which attaches to that.

The bit you borrow from the developer or RSL has two conditions attached. Firstly, you'll have to repay it at a fixed point in the future, or when you sell, if earlier. You'll have to start paying interest on it at that fixed point if you don't pay it off.

Normally, this is expressed as percentage of the value of your home. So when you repay, if it started as 20%, it will still be 20%, but of the increased value if your home is worth more. If the price has fallen, you normally pay back the same percentage, but of the lower amount.

Downside - possible interest payments on "equity loan" and having to repay it when not convenient. Plus, you could have to pay more if prices have risen.

Last, you need to be aware, if you are buying a new-build, prices are often inflated and your home will probably be worth less the moment you move in. Check prices of similar second hand properties to see the difference.

You'll have valuation and arrangement fees to pay for most mortgage products. This will be in addition to legal costs of around £1000 and stamp duty of 1% of the purchase price, if you buy for more than £125k.

Finally, there are only around six or seven lenders in the shared equity market, so not much to choose from.

LauraWxx

I have done a first buy scheme, I went to the development and used the financial advisor who walked me through the first buy application and mortgage application.

I know a lot of people advise against using the financial advisor that is recommended by the developer but I have to say the one i had was great.

good luck!

czerniacha

Ok so it sounds like the HomeBuy agent would be my first stop then...

I'll take a look at similar older properties in the area but am I right thinking that you can only use FirstBuy scheme for a new one?

Thanks

kingstreet

Firstbuy only applies to newbuilds. There are sometimes shared equity properties offered by local authorities. A couple of years ago I did one with Sandwell council. They were offering a three bed semi with a 15% shared equity loan.