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Written by rosalind renshaw

Banks have come under fire for charging FirstBuy applicants hefty premiums.

The scheme, launched at the beginning of the month, aims to provide 10,000 loans to first-time buyers helped by equity being pumped in by developers and the Government.

FirstBuy borrowers then take out a mortgage on 75% of the value of the property.

However, Halifax is charging FirstBuy borrowers 4.49% for a two-year fixed rate deal, compared with 3.59% for those outside the scheme.

It means that FirstBuy borrowers with a £150,000 loan would be paying £890 more a year than non-FirstBuy borrowers.

Halifax charges no arrangement fee, but Barclays charges £299, and Barclays also charges FirstBuy borrowers more – 4.59%, compared with 3.58% for standard borrowers.

By contrast, Nationwide Building Society charges a £400 fee but does not charge FirstBuy borrowers extra, allowing them to take any deal in its core range that is available to those with a 75% deposit.

A FirstBuy borrower with Nationwide would pay 3.24% for a two-year fix, compared with Halifax’s 4.49% for the same deal and Barclays’ 4.59% for a three-year fix.

Melanie Bien, of Private Finance, said: “It seems unfair to charge FirstBuy borrowers more, when the whole point of the scheme is to give them access to more competitive mortgages.”

A total of 14 lenders are currently signed up to the FirstBuy scheme.


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    FTB: Just ask them what they (both the company and the individual who signs you up) get out of it.

    However, what you need to do is to get at least one alternative quote from a local conveyancer.

    Weigh up the difference (if any) between them - then you can make an informed decision.

    Just remember - all the way up and down the line, in everything you buy or need - someone is making money somewhere. Just don't let the thought ruin your life - you are making money out of someone else to compensate.

    • 27 July 2011 14:01 PM
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    Very Interesting Comments.

    I may well elect for the scheme.

    One thing I do not like is Halifax / Lloyds use econveyancer a 3rd party and I could be potentially paying them as much as i am paying their conveyancer however it is dressed up by way of kick back.

    • 27 July 2011 13:14 PM
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    Al: You say I brush this off as an irrelevance - how do you come to that conclusion?

    Shared Equity is a purchase vehicle. Like ALL purchases, the total cost is 100% of the purchase price. The way SE works is effectively by dererring payment of a proportion of the full value for a specified time - often with no cost by way of interest or rent on the proportion not owned (mortgaged). The benefit therefore is that you have the enjoyment of 100% of the property whilst paying initially for only 75% of it. At the end of the specified period (or sooner if the need or wish arises...) the buyer then has to purchase the SE element of the property, or may come to another arrangement, if one is offered.

    SE usually offered on the basis of current MV subject to the minimum balance being the original share value - however some are offered on the basis of %age of current MV. It is not a case of picking which 'deal' suits you - it is which deal goes with your chosen property.

    SO - look at it in context to a standard purchase of a property. I will keep the figures simple for ease of workings (and rounding up to nearest £50 on totals...) - so don't pick me up that the mortgage would actually be 15p more or less than I state, please... ;o)

    The criteria are: buy at £100000, sell at £90000 after 7 years (as per the 10% you chose to highlight).

    Standard purchase: Deposit £10000. £90k mortgage £375/mth x 84 = £31500. Shortfall at point of sale £10000. TOTAL COST over 7 years = £41,500. ADD TO THIS the loss of interest on deposit over 7 years @ say 3% - £1600, and you get a grand total of £43100.

    SE purchase (using your 'scenario 1'): Deposit - nil. £75k mortgage £315/mth x 84 = £26500. Shortfall at point of sale £10000 (£7500 personal, £2500 SE company). TOTAL COST over 7 years = £36500. Deduct from this a potential GAIN of interest on £10k deposit not needed - £2300, and you have a balance of £34200.

    That is a SAVING over 7 years of £5000 NOT taking into account the deposit scenario - or a whopping £8900 if you do (I assume you are leaning towards HPC tendancies so I doubt very much that you will want to, however...).

    Why should the SE company not expect their initial investment back? They have had NO USE of the proportion of the property they effectively 'own'; as stated before many make no charge to the occupant for the benefit at substantial cost implication to themselves; and they have shouldered the greater risk, as only have, at best, a second charge on the property.

    And this ISN'T win:win for the buyer?? Please explain how...

    You state "As I say, some people will be forced to sell because of unforseen circumstances if the scheme has a large enough number of participants, would this be defensible practice?" The scenario you depict happens REGARDLESS of the purchase method, sunshine - don't pretend that SE is any different in THAT respect! When and if it happens that you need to sell unexpectedly; you simply sell in the market you are in at the time. Some win: some lose: some break even.

    I reiterate my previous comment. What about car loans; Hire Purchase; credit cards? Someone with a dodgy credit rating has to buy a £300 TV for £1500 on the High Street. They pay for it for four or five years - the TV lasts three at best - IS THIS DEFENSIBLE??

    • 27 July 2011 10:21 AM
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    Country Lass - thanks for taking the time to respond. PB likewise.

    So to take PeeBee's example(10% drop in price), there are two possible scenarios:

    1. You are liable for the original 25%.

    So sale price = 90% or original, must pay back 25% to repay the original share, leaves you with 65% to cover the 75% share you bought, so you would lose just over 15% of your original stake since you own 75% but are forced to cover the losses on the parts you do not own, leveraging your risk.

    2. You are not liable for the original loan, only a 25% share of the selling price.

    So sale price is again 90% of original, but now the share to be paid back is 22.5%, which leaves you with 67.5%, a 10% reduction of your original 75% share which is what you'd expect since you own 75% of the house and are only liable for losses on the share you own.

    PeeBee, you brushed this off as an irrelevance. Seems to me like there are potentially profound consequences depending on the arrangement. Owning a percentage but being liable for the whole does not seems fair to me, as people's deposits are leveraged by the share of the property (less share = more leverage). As I say, some people will be forced to sell because of unforseen circumstances if the scheme has a large enough number of participants, would this be defensible practice?

    • 26 July 2011 23:53 PM
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    Counrty Lass: To the contrary - I am overjoyed that you and hubby are still loved up!

    (but as long as you refer to me as 'hun' I know there's a candle burning... ;o) )

    For the benefit of Al, say you need to sell your SE property now, and it is worth 10% less than the original PP. You still 'owe' the full PP - nothing changes there whether the lender has a 100% stake or a 75% stake - SOMEONE owns the other share and wants paying back. The advantage that you have had as a buyer is that your payments have been that much less for the length of time you owned the property - making the overall loss less than having a loan on the full amount. Even if you rent part, it is still usually a lower amount than a mortgage would have been for that proportion.

    • 26 July 2011 13:20 PM
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    That is actually a source of debate between me and my husband (yes, PeeBee hun, we are still together. Sorry!)

    I believe we will repay 25% of whatever we sell it for, regardless of the selling price. He believes we will have to repay either 25% or the original 'loan' whichever is greater.

    As PeeBee said, I will decide when I sell the property (despite His Lordship's thoughts that he is The Boss) and what I sell it for.

    I dont believe that this scheme would be feasible for short-term use. We knew when we moved in we would be there for a large amount of time. We may look to sell in a few years, depending on the market at the time.

    Shared Ownership has still to convince me it is worthwhile though. I've seen many of them with high mortgage payments, plus high rent etc on top.

    • 26 July 2011 11:45 AM
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    Al: No more worthy of note than with ANY property transaction.

    You are always at risk of the property value being less at point of sale than at point of purchase...

    Are you saying that SE purchases should carry Government Health Warnings? Better make that EVERY purchase, then...

    • 26 July 2011 11:43 AM
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    PB, most of what you say is true. I've not missed anything, I'm simply asking how it works.

    Extend this scheme to a large number of people and some will find themselves in the situation of having to sell prematurely for any number of reasons unforseen.

    I'm simply asking the 'what if' question, as it is relevant.

    If it turns out that you have to cover any shortfall don't you think that's worthy of note? Likewise if you are not liable for any shortfall.

    • 26 July 2011 11:23 AM
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    Al: The 'value' of Country Lass' property - like ANY other - is only relevant IF she decides to sell it. Unless forced to do so, she will decide when a) she is ready to sell; and b) when she can afford to do so.

    Many shared equity schemes were done on the basis of shared risk - if the property value fell, then the equity share fell also.

    The point you miss is that she had free choice whether to buy via one of these schemes, or not. She chose to buy.

    People make these choices every day - not just on houses: cars, white goods, holidays to name but a few - and there are payment vehicles offered to most of us to enable these purchases. Look at the High Street outlets that offer £300 TVs for £500 - and then charge an extra £1000 interest.

    Funny - but I don't see ANYONE comparing THEIR extortionate interest charges to those in the lead story...

    • 26 July 2011 09:52 AM
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    Country Lass, what happens if the sale price of your property is lower than what you bought it for? How does it work with the 25% of the sale price no longer covering the mortgage?

    • 25 July 2011 21:58 PM
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    Brit, I bought my first place with the Homebuy scheme, 6 years on and I'm still there. Yes, I know it will be difficult, if not impossible in this climate, to move to something bigger, but at the moment I am content where I am.

    I dread to think what little hole I would have ended up in if the scheme hadnt been available. So, yeah, in the future I will have to give them back 25% of what I sell it for, but thats still a better deal than if I had been renting for the last 6 years....

    • 25 July 2011 16:23 PM
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    Interest rates are linked to risk.

    The riskier the loan, the higher the interest rate.

    As Brit1234 says it is a scam, but not perpetrated by the lenders.

    They have been forced into it and are behaving in a way that covers them.


    • 25 July 2011 12:27 PM
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    The extra costs make sense as Firstbuy homes are overvalued and hence higher risk to the lender so they charge higher to off set the scheme.

    Firstbuy/Homebuy, any shared equity or shared ownership schemes are just scams to milk first time buyers and keep overvalued property prices inflated.

    They are scams, don't touch.

    • 25 July 2011 10:24 AM
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    Trap those first time buyers now! Do not let those pesky first time buyers escape! Incentivise them, cajole them but, whatever you do, lend, lend, lend baby!

    Debt is good, more debt is better.

    Okay, had my little rant - I'll leave you in peace for a bit.

    • 25 July 2011 07:13 AM
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