Pity the poor first-time buyer. Against all the odds, house prices are rising. Average sale values have crept up for the past three months, and the jump of 1.7 per cent in July was the strongest monthly growth in five years, according to the Land Registry. The cause: a temporary market imbalance: a surge in demand and a dearth of supply. It’s a blow for those who hoped that the downturn would usher in a new era of affordability. With mortgages unavailable to anyone without substantial equity, first-time buyers are finding it just as difficult as ever to buy a home. Here we outline what help is available.

Government, councils, developers and housing associations all compete to offer “low-cost home-ownership”, yet the average affordable house is, in reality, owned by an unholy alliance of bank, developer and the Treasury. Anyone with a household income of less than £60,000 is technically eligible for state aid. This represents 90 per cent of British households, according to Knight Frank, the estate agent. In practice, the real order of priority is as follows: social tenants on council house waiting lists; key workers; first-time buyers; and those who can demonstrate that they cannot afford a suitable property in their local area. All applicants must have a good credit history and a few thousand pounds cash to cover the cost of moving.

The next hurdle the aspiring affordable homeowner must overcome is the constantly evolving nomenclature of government schemes. Currently, subsidy is available only on new properties. “Government has decided to concentrate resources on new-build to help to maintain housebuilding activity”, says Robert Davies, a spokesman for the Homes and Communities Agency (HCA). Briefly, there are two government schemes currently operating. The first is NewBuild HomeBuy, also known as shared ownership, where a buyer takes out a mortgage on a minimum 25 per cent share of a new-build. A housing association owns the remaining share and charges the buyer rent. Buyers may purchase further shares, up to 100 per cent of the value. The buyer may sell at any time, subject to conditions. A variation of NewBuild HomeBuy, known as Rent to HomeBuy, was announced in June. This enables prospective purchasers of a new-build property to rent it at below market rates for a specified period while saving for a deposit to buy it on NewBuild HomeBuy terms.

The second scheme, announced in September 2008, is HomeBuy Direct, also known as shared equity. Here, the buyer must purchase a much larger share, a minimum of 70 per cent, using a mortgage, and take out an “equity loan” from the developer and the HCA on the remaining share. He or she owns the title to the entire property. The buyer may buy further shares and sell on the open market without restriction, though any profit must be shared with the loan provider. All the properties available under these schemes, along with eligibility criteria, are listed at www.homesandcommunities.co.uk/homebuy_agents.

It is hard to quantify the impact of these schemes. Research by Channel 4 News in July found that only 215 people had benefited from HomeBuy Direct since September 2008. However, Robert Davies says that the scheme became active only in April last year, since when it has “increased exponentially”. He adds that there has been a “big uptake” from developers, and that the various government schemes have resulted in 70,000 affordable homes being built and sold over the past five years.

The biggest provider of social housing is not housing associations, but Barratt Homes, owing to a 2006 planning policy requirement that obliges the builder of any development of more than 15 properties to provide some level of affordable housing. In 2008 Persimmon sold more than 2,000 affordable properties to individuals and 1,500 to housing associations. It offers HomeBuy Direct properties on 200 sites in England, and separate shared-equity deals in Scotland and Wales, which are open to anyone who can get a mortgage for 85 per cent of the value.

Other developers’ deals tend to have much shorter time limits on the loan agreements than the Government’s 25-year repayment periods. For example, Barratt’s Head Start and Dream Start shared equity schemes, which offer first-time buyers a 15 or 25 per cent interest-free loan, are repayable after ten years.

There is a way of avoiding developers and the Government. Assettrust Housing, a private company, specialises in buying properties from the big housebuilders and selling them on a shared ownership basis, even on prestigious sites such as Pan Peninsula in London’s Docklands. You don’t even have to be a first-time buyer.

‘Took the plunge’

NewBuild HomeBuy

Sian Jenkins, 50, does not fit the profile of the first-time buyer usually associated with shared ownership. A manager for a luxury retail company, she had been renting for 20 years having lost her marital home in a divorce. Now, she could not be happier in her new home, in the Bermondsey South development, in South East London. “I was afraid of taking the plunge, but I am very happy I did.”

Jenkins had been renting in “dire” Catford, but needed to shorten her commute to a new job in Central London. Unable to save the deposit required for a mortgage, she registered with L&Q and bought a 40 per cent share of a two-bedroom flat worth £245,000. She pays rent on the remaining 60 per cent to L&Q, about £400 a month.

lqgroup.org.uk 0844 4069800

‘This was exactly what I needed’

Rent to HomeBuy

Daniel Armstrong, pictured below, was about to abandon his search for a NewBuild HomeBuy property in Northampton when the Government launched the Rent to HomeBuy scheme in June.

“I was offered a mortgage on a share of a flat but the rates were very high and I needed to scrape together a deposit. Then East Midlands Housing asked me if I’d be interested in Rent to HomeBuy.”

He jumped at the chance. “It was exactly what I needed — time to save for a deposit, and the opportunity to move in quickly and try the place out.”

Armstrong, 31, a radiographer, is now renting a new two-bedroom flat worth £97,000 in the Sycamore Court development in Northampton at a below-market rate of £340 a month, plus a £40 monthly service charge, and is saving up to buy a 50 per cent share.

“I’m happy with the flat. I’ve got a new cooker, washing machine and carpets. It’s good quality, apart from a few cracked tiles in the bathroom.” Armstrong plans to ‘staircase’ up, but not for a few years. “It’s a start, isn’t it?” he says. “I can now get a mortgage when I’m good and ready, and I can always change my mind.

“The area’s not the best, but my only other option would have been to buy a shoddy old place with a very expensive mortgage. It’s not quite as nice as the Barratt flats next door, but better than the council flats down the road.”

emhomebuy.org.uk, 0844 8920112

‘We’re very happy’

HomeBuy Direct

It was when Daniel Rowse, pictured above with his wife Benjamas, calculated that he had spent about £60,000 on rent over 12 years that he realised it was time to buy. “But financial advisers said we needed £20,000 cash for a deposit and other costs, and we couldn’t afford it.”

Rowse, an air-traffic controller at Newquay airport, heard about government subsidised housing schemes on the news and asked Persimmon Homes, the developer of a new estate, The Hurlings, in St Columb Major, Cornwall, if it offered affordable housing.

“Six weeks later they said four houses were available through HomeBuy Direct,” he says.

Rowse bought a 77 per cent share of a two-bedroom semi-detached house valued at £179,995, and he and Benjamas moved in June. “I have a mortgage for £138,000, which wouldn’t have bought me anything on the open market,” he says.

He feels that the scheme is simple as he can sell privately at any time (splitting any profit with the Government and the developer) and buy more shares when he can afford it.

“Shared equity works well for people who have reasonable pay but can’t get a deposit. Ultimately, we’d love to pay it all off, but it will become more expensive as prices rise,” Rowse says.

“We’re not really in it for the money though, so we’re very happy. It’s a wonderful feeling being able to drill holes in my own walls.”

home2own.org.uk 0300 1000021

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