The past two years have seen an increase in shared ownership schemes offered by developers, as they seek to assist first time buyers in getting their foot on the property ladder.
In addition to the developers own schemes, developers have joined forces with local housing associations by participating in schemes backed by the Government. Indeed, properties on residential developments participating in such schemes have been quick to sell.
Homebuy Direct is one such scheme that developers have been participating in and is open to households earning less than £60,000 who would otherwise be unable to purchase their own home. First time buyers, key workers and housing association or council tenants are examples of those eligible to take part in the scheme.
Under this Scheme, an equity loan is given to the buyer by a Homebuy agent (through public funding) and the developer. These loans represent a percentage of the value of the property and are secured as second and third legal charges against the property. The Buyer then obtains the balance of the purchase price from a conventional mortgage lender.
No fees or charges are payable during the first five years of the equity loan, so what is the catch?
When the property is sold, the owner will be liable to repay both equity loans and also the conventional mortgage. The amount to be repaid will depend on the percentage borrowed. Therefore, if the property has increased in value then the owner has to share that profit with the Homebuy agent and the developer. However, there is also a risk to the developer and Homebuy agent if the property has fallen in value, as they may make a loss on the amount loaned.
We have seen a number of developers keen to participate in this scheme. This would suggest to me that they have confidence in a recovery of house prices in the near future!