First-time buyers are likely to have to wait until next year to take advantage of the Government’s new homebuying scheme.
Several major lenders have revealed they were given little notice of Your First Home, which aims to help people get on the property ladder.
Those who use the scheme will be able to purchase a new-build with a 2.5 per cent deposit backed by a 20 per cent equity loan.
New details suggest the Chancellor will set the earnings cap for households at £110,000 for applicants outside London and £140,000 for buyers in the capital.
An official launch date has not yet been announced, with further details expected in the Budget next week.
But lenders have said the notice they were given of the plans was limited, which will affect the speed at which they can get the product ready.
Mortgage and saving platform, Tembo, said banks were consulted just a few days before the announcement, made at the Labour conference in September. One building society told The i Paper it was told on the day.
Meanwhile, several banks and building societies, which offer multiple products for first-time buyers including low deposit mortgages, told the i Paper they were not consulted at all on the scheme, and only found out via Burnham’s announcement.
Others also said they expect the scheme to launch in early 2027, rather than later this year, once providers are ready to offer the product.
For announcements such as these, it is unusual for lenders to not be consulted ahead of time as this process allows them offer input and feedback on the suggested scheme.
Although this feedback may not always guarantee the Government will make any changes to its proposals, experts say it is always “sensible” to at least attempt a consultation.
Dana added: “For a scheme that depends on the participation of lenders, I would expect early discussions to stress test how it could work in practice and what a realistic launch timetable might be. Generally you would expect to have a period of consultation with key stakeholders prior to any announcement.”
Richard Dana, chief executive and co-founder of Tembo, said given banks had little notice of the scheme, it would be a “sizeable ask” for lenders to create the appropriate products in time to launch the product this year, as a new mortgage offering typically takes time to bring to market.
He said: “This product only requires a 2.5 per cent deposit so none of the banks have a specific product that sets up within that LTV [loan to value] bracket. So, banks have said they basically don’t have the product to support it.”
The LTV ratio is the amount of money you borrow on a mortgage compared to the value of the property.
Dana said: “A government backed scheme like this isn’t something lenders can simply switch on.
“Before launch, they need to agree factors such as risk appetite, affordability rules, work out how the equity loan sits alongside their own lending, update systems, write legal documents, brief brokers and valuers, train staff and meet the FCA’s Consumer Duty rules.”
He said all of this can take at least a few months to put into place before a product of this nature can be launched.
The i Paper spoke to multiple lenders ranging in size to see how prepared they were to launch the scheme.
Many said they would be keeping a close eye on the Budget next week to get confirmation of final design and details of the scheme.
A spokesperson for Nationwide said the lender was in discussions with the government about its plans and would participate “as soon as practicable”.
Jon Cooper, director of mortgages at Aldermore, said: “For lenders to launch responsibly, we’ll need clarity on the final requirements and sufficient time to implement them properly.
“The priority must be to hit the ground running and make sure the scheme works well from day one, rather than creating unnecessary confusion for would-be buyers.”
David Hollingworth, associate director of communications at L&C Mortgages, said the period from when the full details of the scheme are announced to when it actually launches needs to be as short as possible to avoid stalling first time buyer activity in the meantime.
He said: “Those that are able to proceed without using the scheme are likely to carry on, but there’s bound to be indecision for some who will wonder if the scheme might offer them a better option.”
Experts divided over scheme
Experts have been divided on whether the scheme is a good idea, adding that buyers will need to take note of the small print.
Nick Mendes of brokers John Charcol said: “Buyers will need to go in with their eyes open.
“The scheme is limited to newbuilds, which often come with a premium over comparable existing homes, and the equity loan will ultimately need to be repaid, so buyers need to be clear on the terms before committing. This certainly helps, but there is more that could be done to support the wider market.”
Joseph Lane, founder of brokerage Mortgage Lane, said the scheme may have knock-on effects when a person comes to remortgage or resell their home.
He said: “Buyers need the final rules on future charges, repayment and remortgaging before they can assess the true cost. If repayment follows the property’s value, a rising market could also make buying out the government’s share more expensive.
“With a small initial deposit, weak resale values and selling costs could leave little equity for the next move, particularly if the owner is competing with nearby developers offering incentives.”
With fixed mortgage rates currently hovering around six per cent, amid fears they could go even higher, buyers are also encouraged to check how much they can afford before locking in to a new home.
A government spokesperson said: “Your First Home is a much-needed step to get people onto the housing ladder, and we have always said we intend for pre-registration to open by the end of the year.
“Further details, including longer-term implementation timelines, will be announced by the Chancellor at the Budget next week.”