Recently, I was involved with a client who was looking to purchase a new property with the help of the government's NewBuy Guarantee scheme. In its current format, purchasers can buy a property with a 5-10% deposit and a 90-95% loan-to-value mortgage. Lenders will provide such a high percentage of the value because the government is providing some protection for the lender in the event that the property is repossessed and the lender cannot recover the full amount of its loan. At the moment, the scheme is only available for the purchase of new-build properties and there are some other restrictions.
One of the aims of NewBuy is to get first-time buyers on the property ladder and help others climb up it. Although many people may be able to afford mortgage repayments, they are not always in a position to put down a hefty deposit. Having spent thousands of pounds on university fees, the GDL and the LPC, it is not surprising that even though most of the trainee solicitors I know are earning a decent salary they are not in a position to buy a house.
The scheme is one of a number introduced by the government which is trying to get the residential property market moving. The government has also introduced shared ownership schemes and equity loans to help more people access the property market. From 1 January 2014 the government are introducing a new initiative called the Help To Buy mortgage guarantee scheme. This will be available for both new-builds and existing properties up to a value of £600,000.
Lenders have welcomed this addition to the Help To Buy home ownership schemes but worries have been expressed that it will artificially inflate house prices to the detriment of buyers. There are also potential losses ahead for purchasers of new-builds who are not looking to stay in their property for a long time: a premium is often paid for new properties which may not be recoverable if the property is sold in the short term.
However, the number of people using the government schemes is considerably fewer than predicted: only 1,500 new homes were sold through the NewBuy scheme in the first nine months but the government's target was 100,000. I certainly haven't come across many clients in my Property seat looking to take advantage of the schemes.
All this property work is certainly making me think more seriously about buying a house. I suppose I'd better start saving!
Posted by Harriet Betteridge, trainee in the property practice group.
Harriet started her training contract in September 2012 having previously worked in the Litigation team as a paralegal. Her previous experience includes working at a group of law centres in south London and in the Legal, Compliance and Risk team at the Charities Aid Foundation.