We have all seen an increase in parents helping their children with their deposits and this is typically raised from savings or releasing monies from their own property. But how would parents feel if they were able to help their children by taking out an unsecured loan to cover the deposit their children need?

Well Barratt believes that its scheme does offer the answer to the age old problem of saving enough for that first home deposit. The initiative is said to be offering loans of up to £50,000 over a 12-year fixed period and will allow parents to take out unsecured borrowing to cover the deposit for their children. The thought behind the scheme allows the first-time buyer to obtain an 80 per cent mortgage, pay a 5 per cent deposit, and the remaining 15 per cent is covered by the loan taken out by the parents.  

So is this an option for you and your parents? It is reported that this will be an unsecured loan with a fixed rate of 5.4 per cent, with the flexibility of being able to make overpayments and fee-free early redemption. Would there be parents out there willing to do this for their children, particularly if they have more than one child wanting to make that step onto the housing ladder?    

Barratt is reported as saying the scheme is ideal for parents who have sufficient income to service a loan but no available capital, or people who have capital which is tied-up which they do not want to access in the short term. We all know that there is enormous demand for properties from those people who are first-time buyers still living at home or renting. 

Barratt has teamed up with Hitachi Capital to offer the scheme and they have stated that the increase in the deposit amount now required by first-time buyers has had an affect on the market, and the innovative Barratt loan gives parents an option to support their children getting their foot on the ladder.

So over to you – is this something that can help you as a first-time buyer? Or, more to the point, is this something you would be willing to do as a parent?

So what is shared equity? You purchase a property and own 100% of it, but you obtain a mortgage for a certain percentage of the equity (e.g. 75%) and the developer and/or Government holds a charge (mortgage) over the remaining share (e.g. 25%); depending on the scheme, you may or may not pay rent on that 25% share. In simple terms, although you own the property outright, your main lender holds a legal charge over the property and, in addition, the developer and/or Government will secure a second charge over the property to secure the repayment of their share when you sell or decide to pay the equity loan off.

So what is shared ownership? You purchase only a share in the property (e.g. 75%) and the local authority, developer or housing association retains the remaining share (e.g. 25%) and you pay rent on that share. In simple terms, you have a share in the property, which is usually purchased with the assistance of a mortgage, but you do not own the property outright. You can purchase further shares in the property later (up to 100%) and this is called ”staircasing”. This increases your share of the property and reduces the share retained by the local authority/developer or housing association, which  would also reduce your rent payments.

If you are still puzzled, please contact me at sarah.wilkins@mablaw.co.uk and let me help you understand the options open to you.

Many first-time buyers have felt the pinch, with the end of the stamp duty holiday for properties up to £175,000.00 taking place from the 1st January 2010. Now all properties over £125,000.00 attract stamp duty liability. This is an additional cost people are having to budget for from the outset, particularly for many of my first-time buyers who are purchasing new build properties off-plan and due to complete in 2010. Many buyers in the marketplace have wrongly assumed that an exchange of contracts prior to the change meant they avoided this cost – you should be aware that the stamp duty liability comes about on the completion date. First-time buyers are trying to save hard for their deposit, valuation fees, and legal costs, and the stamp duty for the lower end of the market does add to that struggle.

With first-time buyers trying to take that first step onto the property ladder, and some not having the large deposit required, I am seeing more shared-ownership and shared equity schemes through first-time buyer, government-led initiatives. Interestingly, I am even working with first-time buyers purchasing on one Milton Keynes new home development, where the developers are offering their own competitively rated mortgages. This is encouraging news for the first-time buyer, enabling the market to continue to grow and hopefully making moving home for everyone affordable again.

Recent market trends have meant I also see more of my first-time buyers using ‘the bank of Mum and Dad’, receiving financial assistance from their parents in order to take their first step; or, this could just be the parents wanting their children to finally fly the nest! It has been reported in the press that the average age of the first-time buyer has risen from 29 to 30 in 2008, and many confirmed that this move was made with the assistance of their parents. So our next generation property owners are starting to buy later and live at home for longer; after all, it’s cheaper to live at home than it is to buy and rent!

If you need any advice on the first-time buyer initiatives, please contact me at sarah.wilkins@mablaw.co.uk

The optimism in the market place has been gathering momentum, with Taylor Wimpey announcing an operating profit for 2009 of just over £40m. Pete Redfern, Taylor Wimpey’s chief executive, has been quoted in the press as saying that he believes the UK housing market has strengthened “significantly” over the past year. The company has also described UK trading as “encouraging” in the first two months of 2010, with continued improvement in visitor levels, sales rates and cancellations. Persimmon are another large developer restoring some confidence in the New Homes market after announcing a pre-tax profit of £78m. The company was reported to have made a huge £780m loss in 2008, but an increase in demand and prices in the second half of 2009 is seen to be responsible for the improvement in its full-year figures.   

It is without a doubt great to hear that the long-struggling developer sector is starting to see a return to profit, although most developers remain cautiously optimistic, with new-build sales still struggling with down valuations by the mortgage lenders. This disturbing trend has caused developers to lose many sales and many first-time buyers have been unable to get their foot on the housing ladder. 

Persimmon is one of the many housebuilders who benefit from the first-time buyers government funding, with 2,700 of its plots receiving funding from the scheme, and this has been a positive way of supporting more plot sales. Persimmon’s chief executive, Mike Farley, has said that the prices for their new homes had held up, with a rise of 1 per cent in the first two months of 2010 , whileplot sales were up 7 per cent on the same period last year. But as for predictions for 2010, Mr Farley said that he expected the prices to rise by between 2 per cent and 3 per cent over the course of 2010 – gently optimistic some would say. 

Barratt Developments and Galliford Try reserve their judgment as to whether the recent rise in demand would continue into 2010. Barratt has said that it had cut its losses for the last six months of 2009 from £678.9 million to £178.4 million after rises in their new homes prices and sales. Galliford Try, a smaller developer largely building in the South East, has reported a similar trend, with their half year pre-tax figure of £6.4 million up from a loss of £26.9 million in the six months before. However, Galliford has expressed concerns that government funding for affordable housing, which accounted for a fifth of its completions in the last six months of 2009, will fall away as a result of housing budget cuts. Will the government cuts further damage the recovery from the biggest downturn most of us can remember?

Both Barratt and Galliford have made the suggestion that Santander’s welcome move to increase its loan limit for first-time buyers to 90 per cent for new properties is a sign that the mortgage market is set to improve in 2010.  So are we ready for a recovery in house prices? As mortgage availability improves and buyers confidence is restored there will be strong demand for new properties, particularly as many developers have slowed the pace of their building. News like this from large developers could spell the start of the long-awaited recovery of the UK housing market.

Annual Percentage Rate (APR)

This is the rate that represents the cost of borrowing, as opposed to the interest rate. The APR, for example, will include certain charges in addition to the interest rate; this allows you to make comparisons between different forms of borrowing.

Completion Date

The date that you pay for the property and can move into it. The completion date is agreed at the time of exchange of contracts (if the property is structurally finished). I will telephone you on the day of completion to confirm you can collect your keys from the site office or estate agents, once the seller’s solicitors have received the purchase price monies from me.

Contract

This is the legal document that I ask you to sign and which confirms your details, your seller’s details and the property details, including the price. Your seller will sign a copy of the same document and I have to hold a signed contract on your file before I can exchange contracts for you.

Deposit

The usual deposit amount is 10% of the purchase price. This much is not always available, depending on the level of funding (mortgage) you are obtaining. You should let me know as early as possible what deposit you have available, so that I can check with the seller’s solicitors if less than 10% will be accepted (in the case of a FTBI – see below – no deposit may be required). I must hold the deposit monies in cleared funds in order to exchange contracts for you.

Exchange of Contracts

Once I hold your signed contract and cleared deposit, I can exchange contracts for you, from which point you (and the seller) are legally bound to proceed with the purchase. This involves me speaking to your seller’s solicitors on the telephone to formalise the terms of the contract and the completion date. I will always take your instructions before I exchange contracts to ensure you are happy with the completion date and happy to proceed.

Financial advisers

These are people who provide advice on a range of financial products. If they only advise on mortgage products, they are often called mortgage brokers.

Financial Services Authority (FSA)

The Financial Services Authority is the UK’s financial watchdog set up by the Government to regulate financial services in the UK and protect your rights.

HomeBuy and First Time Buyer Initiative (FTBI)

Government-funded schemes which offer people assistance in owning their own home.

HomeBuy Agent

HomeBuy Agents are appointed housing associations or housing corporations, who are providing a “one-stop-shop” and point of contact for affordable housing options in a given area in England and will handle the entire application process for many FTBIs .

Homebuyer’s survey

A surveyor’s report carried out on the property you intend to buy, which typically includes a property valuation.

Housing associations

Housing Trusts, Housing Societies and Registered Social Landlords who provide their local community with high quality and affordable homes in areas of greatest need.

Housing Corporation

The Housing Corporation is funded by the Government and provides the money or grants for affordable housing.

Interest-only mortgage

An interest-only mortgage is a type of mortgage where the monthly payments consist only of interest and do not include any capital repayments. The capital is normally repaid by other means at the end of the mortgage term.

Key workers

Those working in the public sector in health, education or community safety – such as teachers, nurses and police officers – in areas where high house prices are affecting recruitment and retention of key workers.

Legal Charge Document

A legal charge is the document which enables the mortgage lender to collect mortgage repayments (and repossess the property in certain circumstances such as non-payment.) Sometimes referred to as a Mortgage Deed, the document is signed by you and sent to the land registry at the time of registration of your purchase to secure the mortgage or mortgages you have on the property.

Mortgage offer

The formal paperwork which sets out the terms upon which the lender will grant a mortgage.

Mortgage Term

Length of the repayment period of the mortgage offered to you in years.

Registered Social Landlord (RSL)

This is the technical name for social landlords who are registered with the Housing Corporation.

Repayment mortgage

A type of mortgage where the monthly payments consist of interest and capital. If payments are maintained, then the mortgage is repaid by the end of the mortgage term.

Valuation

An assessment of the current market value of a property, carried out for the benefit of the mortgage lender.

The new leases must be used for all shared ownership leases granted on or after 6 April 2010 for homes built with funding from the HCA (unless an earlier contract requires the use of a different form of lease). The new leases replace the model leases published in September 2009, which should be used until 5 April 2010.

The HCA believes the lease will not only simplify and speed up the home buying process but, at a time of financial caution, will assure existing lenders of shared ownership mortgages. As economic conditions improve, the revised lease should help to encourage new lenders into the shared ownership market.

The lease has been developed in conjunction with the Departrment for Communities and Local Government, the Council for Mortgage Lenders, the National Housing Federation and a number of leading mortgage lenders and providers of affordable housing. The new leases have been amended to:

• Extend the level of protection given to mortgagees of shared ownership properties;
• Update the layout and language of the leases;
• Clarify the provisions relating to alienation, rent review, making good damage to common parts and frustration in the event of damage or destruction.

The lease can be adapted by housing providers and lenders to suit individual situations, but there are fundamental clauses that must be included in any new lease. The fundamental clauses cover alienation, mortgagee protection, ‘staircasing’ provisions, protected area ‘staircasing’ provisions (where appropriate), rent review, service charge provisions (where appropriate) and right of first refusal. The landlord must also give the leaseholder a document entitled “Key Information for Shared Owners”, which sets out the main terms of the lease.

So what is shared equity? You purchase a property and own 100% of it, but you obtain a mortgage for a certain percentage of the equity (e.g. 75%) and the developer and/or Government holds a charge (mortgage) over the remaining share (e.g. 25%); depending on the scheme, you may or may not pay rent on that 25% share. In simple terms, although you own the property outright, your main lender holds a legal charge over the property and, in addition, the developer and/or Government will secure a second charge over the property to secure the repayment of their share when you sell or decide to pay the equity loan off.

So what is shared ownership? You purchase only a share in the property (e.g. 75%) and the local authority, developer or housing association retains the remaining share (e.g. 25%) and you pay rent on that share. In simple terms, you have a share in the property, which is usually purchased with the assistance of a mortgage, but you do not own the property outright. You can purchase further shares in the property later (up to 100%) and this is called ”staircasing”. This increases your share of the property and reduces the share retained by the local authority/developer or housing association, which  would also reduce your rent payments.

If you are still puzzled, please contact me at sarah.wilkins@mablaw.co.uk and let me help you understand the options open to you.

Staircasing – what does it involve? If you are not sure whether you are financially able to staircase and purchase further shares in your property, it may be worth checking out the market in your local area to get an idea of the likely prices of property and obtain a valuation. You will need to contact your Housing Association to arrange for this up-to-date valuation and this will be something you will have to pay for. Once you have this valuation you can then decide what further percentage you wish to purchase. Your individual Lease may stipulate the amount you can staircase in any one stage and the Housing Association should be able to confirm this for you.

If you have the funds available from savings or an inheritance, for instance, you will be in a position to proceed immediately, and you would need to instruct me as your solicitor to deal with the legal paperwork on your behalf. Another option open to you would be to contact your existing mortgage company and arrange for a further advance. Your last option would be to obtain a new mortgage from a new lender, borrowing enough money to purchase the further share and to pay off the existing mortgage. You may wish to speak to an independent financial adviser or mortgage broker in relation to your current mortgage product and what new products could be available for you.

Once you have decided the way forward, you will need to instruct me to proceed with the transaction, which must take place within three months of the date of the valuation. You will need to consider the stamp duty implications of staircasing and this will depend on the percentage share you are purchasing and how you paid stamp duty on your original purchase of the property. I will be able to give you further information depending on your individual circumstances. Once the staircasing has been completed, your lease will be noted accordingly, so on the sale of the property there is a record of the extra share or shares purchased.

So what do you do? You raise your mortgage with any high street bank or building society through an independent legal adviser who is familiar with the scheme in your area (a list of appropriate advisers can be provided to you by your local MyChoice HomeBuy agent). Then, in addition to your mortgage, you will receive a government equity loan for up to 50% of the purchase price of the property. The scheme confirms that savings above £10,000 can be used to ‘top up’ your purchase price without affecting the equity loan provided by the government.

You are free to choose a home of your own choice on the open market provided the property you have selected is in a reasonable condition (you will need to instruct a homebuyer’s survey to ensure this is the case). If you are employed as a key worker, you must also ensure sure that you choose a property that is no more than 90 minutes travelling distance from your place of work.

MyChoice HomeBuy is for people who would not normally be able to buy their own home on the open market and is predominantly aimed at key workers and public-sector tenants. If you want to purchase a property with the assistance of the MyChoice HomeBuy scheme, you will need to meet the legal and other costs associated with buying a home. Your MyChoice HomeBuy agent will provide you with a list of recommended solicitors who are familiar with the scheme and the paperwork involved so you can be rest assured the transaction will progress smoothly.

Funding from the government for the scheme is usually available from April and is in huge demand, with many MyChoice HomeBuy agents accepting applications from January. So get the ball rolling and contact your local MyChoiceHomeBuy agent to see if you are eligible for the scheme.