Government pledges £250m to homebuyer loans

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First-time buyers to benefit from a £250 million cash injection to help them onto the property ladder.

This week Chancellor George Osborne extended a hand to first-time buyers looking to get on the property ladder via the FirstBuy Scheme.

FirstBuy, co-funded by the Treasury and housebuilding industry will offer first-time buyers loans worth 20% of the value of a new property.

Typically, first-time buyers purchasing a house have to put together a deposit of 25%.

The £250 million needed to fund the scheme will come from this year's bank levy and will help 10,000 first-time buyers purchase a newly built home.

Chancellor George Osborne announced that £210 million will be spent in England and the other £40 million in Wales, Scotland and Northern Ireland.

Quiz

How much do you know about mortgages?

Whether you’re an existing homeowner or a first-time buyer, knowing the mortgage market inside out could help you get the best deal. Take our test to see how your mortgage knowledge measures up.

What does LTV stand for?

Low transaction value

Lender to view

Loan-to-value

Which type of mortgage follows the Bank of England Base Rate?

Offset mortgage

Tracker mortgage

Fixed-rate mortgage

When would you have negative equity?

When you miss a mortgage payment

When the value of your home is less than the outstanding balance on the mortgage

If you’re unhappy with your mortgage rate

What is a Standard Variable Rate?

The outstanding balance on your mortgage

A mortgage rate that factors in your savings

A lender's normal rate

What is a remortgage?

Switching to another mortgage deal

Switching your mortgage from one property to another

Having two loans on one property at once

Which of the following can be taken into account when applying for a mortgage?

Whether you are on the electoral role

Your marital status

Whether you have a university degree

0 / 6

Score: 0 out of 6

Retake the quiz

How it works

Some 10,000 people buying newly built homes will receive 20% of the cost from the Government and the builder in low interest loans.

Potential buyers must have a deposit of 5% of their property's value. The government and homebuilders will then put up 10% each through an equity loan which will enable buyers to qualify for a 75% loan-to-value mortgage.

The loan will be interest-free for the first five years with interest charged at a rate of 1.75% in year six, and at inflation plus 1% thereafter.

You will only qualify for the loan if your current household has a collective yearly income of less than £60,000 and want to purchase a new build property.

The Chancellor expects the policy will help support 40,000 construction jobs.

First-time buyer misery

Given the current challenges first-time buyers face in the mortgage market, some have greeted the scheme with open arms.

However, some industry experts question whether it will have a significant impact.

First-time buyers have been struggling to get on the property ladder since banks have tightened lending criteria.

Many lenders require a substantial deposit, making an already desperate situation worse which has lead to a generation of younger people being locked out of the housing market.

The latest figures from the Council of Mortgage Lenders state gross mortgage lending in February was at £9.5 billion – almost identical to January.

Although stronger remortgage activity has given the housing market a boost, first-time buyers still have limited options.

FirstBuy is intended to fill the gap left by the withdrawal of the previous government's Homebuy Direct Scheme which ended last year.

**This material is for information purposes only and should not be considered financial advice. We strongly encourage our readers not to rely solely on this content, but to seek independent advice when making financial decisions.**

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