Published on : Mon, 30 May 2005 00:00GMT
by : Lisa Pitt

First-time home buyers could have their finance burdens considerably lightened by a special deal which Chancellor Gordon Brown has struck between the Government and mortgage lenders.

According to Mr Brown’s plan, new buyers would need to raise mortgages only ranging between 50% and 75% of the property’s cost. The rest of the equity would be shared between the Government and the mortgage loan provider. The buyer would have to pay only a nominal ‘rent’ not exceeding 3% on the part that s/he does not own. S/he would have the option of buying the whole stake later when they are able to.

The part of equity shared by the bank or house building society and the Government could slash average repayments on a £200,000 home by as much as £372 per month.

This financial assistance is expected to bring more first-time buyers on to the housing ladder. Mr Brown said in an interview that the plan was meant to help people who could not afford the full price of a home. They could gradually increase their stake by buying some equity as and when their finances look better.

Thousands are expected to benefit from this plan. Mr Brown felt “More people wished they could get a foot on the property ladder but very few could actually do so; the rest felt the prices clearly beyond their grasp.” He said it was part of his Government’s idea of helping people meet their aspirations for themselves.

The Government was also concerned about the property market which has significantly contributed to the buoyancy of the economy. If new buyers continue find house prices prohibitive, then selling chains would slow down and eventually stop. The signs of the recent slowdown are already pointing to such a possibility. The most noticeable effect was felt in London which saw the lowest levels of house sales in a decade.

Unlike previous Government plans which were restricted to key public sector workers, this scheme will be open to all UK citizens. Also there will be no means test.

Banks and building societies will have to screen the applicants to determine the deserving borrowers from among the applicants. They will have to ascertain that the applicants’ salaries or sources of income are so inadequate as to make the average-priced house ‘just beyond the applicant’s reach’. However, this screening would exclude people who were seeking to buy dream houses that are simply beyond their means.

Mr Brown is expected to announce details of the `shared equity schemes' this week.

In addition, the Government is expected to release more land for low cost housing, make planning rules less tough and announce ways by which it would cut construction costs.