Under the Homebuy scheme, first time buyers take out a mortgage for 75% of a home's value with no deposit and the Government and the mortgage lender will in practice buy the remaining 25% of the property. Then when the borrower eventually decides to sell the property, the borrower will receive 75% of the net sales proceeds and the remaining 25% of the sale price will go to the Government and the mortgage lender. In the mean time, if the owner wishes to buy out all, or part, of the Governments or mortgage lenders 25% interest, the borrower can simply repay the money the Government and mortgage lender initially put in.- there will be no penalty.



In our view, first time buyers shouldn't become too excited about this scheme for six reasons: -

- The Government has recently confirmed that buyers will have to pay a 1% premium on top of the usual mortgage rate.

- There has been no announcement as to the amount relative to income, which borrowers can qualify for. So at this stage it's impossible to judge what sort of house a first-timer could buy. However, we bet it's a very small one!

- Despite hopes that more mortgage lenders would join the Yorkshire Building Society, the Halifax, and the Nationwide, as co-sponsors of the scheme, no additional lenders have been added to the list.

- The Government expects Homebuy to lend to 4,000 first time buyers per year. That's only fractionally over 1% of the 361,000 first time house purchases arranged each year. In terms of availability, it seems as if Homebuy mortgages are going to challenge hens teeth!

- The Government hasn't even announced the rules under which a first time buyer can qualify to even apply for a Homebuy mortgage.

- The scheme is not planned to be operational until October 2006.

So even if you're happy to pay the 1% premium, your chances don't look too good for qualifying for an Open Market Homebuy mortgage. Our advice is to forget about them and find a top class mortgage broker to seek out a great deal on the open market.

Signs that our reticence is shared amongst Members of Parliament came from a comment from Michael Grove, shadow housing minister. He is reported as telling the Sunday Telegraph that he wanted to see the Homebuy scheme made easier and cheaper for lenders in order to encourage greater participation from the mortgage providers. We think that's fine, but participate in what? Until we know who can apply and how much they can borrow, the scheme means nothing.