In his recent budget, Gordon Brown announced a new “Homebuy” scheme which will become operational in October 2006.

Under the scheme, homebuyers can take out a mortgage for 75% of a home’s value and the government and the lender each would top up with 12.5%. Because of the extra cost to the lender, the interest rates are expected to be around 1% higher than base rate. Presumably, borrowers will still have to prove that they can afford the repayments.

When borrowers eventually sell the property, they will receive 75% of the net proceeds as the lender and the government will effectively own the balance. However, borrowers will be able to pay off the top-up loans at any time without penalty.

The government has not announced exactly who will be eligible to join the scheme although earlier they said that only those judged as “priority” would be eligible. Nevertheless, the government says that around 20,000 will benefit by 2010.

So far the Halifax, the Yorkshire Building Society and the Nationwide have agreed to participate in the scheme but other mortgage lenders are expected to follow suit.

To put this scheme in context, there were 361,000 first time buyers in 2005 so at the rate of 4,000 Homebuy mortgages per year, the scheme will hardly cause a ripple in the housing market.

More Topics - Right to Buy Mortgages
More Topics - What happens if i am refused a mortgage
More Topics - Where can i buy a mortgage