Thousands Face First-home Despair

[cashinmattress]

Thousands face first-home despair

No sooner had buyers' hopes been raised by the lure of government funding than they were dashed, writes Jessie Hewitson

As many as two-thirds of first-time buyers who thought they were purchasing through a government-backed scheme have had their dreams crushed because it ran out of funding.

Cash broke the story about MyChoice HomeBuy following April's budget, but the number of people who have been affected is only just coming to light - and it looks like running into thousands.

Many are first-time buyers but others are those further up the chain who have seen their buyer disappear, and so have missed out on a new home.

MyChoice HomeBuy allows buyers to choose any home on the market - old or new - and have the government fund as much as 50% of the purchase price with a low-interest loan.

Paul Robson was one such buyer who thought he was on the road to completing on his first home.

After receiving the nod from his local housing association's financial adviser that he was eligible for the scheme, the 31-year-old company director found a new flat he loved in Stevenage, Herts, and paid a £1,000 deposit to secure it.

Shortly after, he found out that the funding for MyChoice HomeBuy had run out in the local area, so he wouldn't be able to buy after all. "It was massively disappointing," he says.

"It has wasted a great deal of my time, and now I'm back to square one. I have a verbal agreement from the developer to refund my £1,000 deposit, but I won't fully relax until I get it. In my mind it feels like the government came up with a great idea and got the hopes of thousands of first-time buyers up, only to rip it out from underneath us."

Robson's is not an isolated case. Richard Stone, of SPF Sherwins, one of the biggest affordable housing mortgage brokers, has carried out more than 1,400 assessments for first-timers eligible for MyChoice HomeBuy. Of these, only 100 were able to buy.

"It's another nail in the coffin of the affordable system," he says. "It's a fantastic scheme, but this is bad PR. I'd say at least two-thirds of the people I have seen have walked away disgruntled."

Different regions of the country ran out of money for the scheme at different times, but for some it was just three weeks after the April 2009-April 2010 funding came into effect.

By the middle of last month, most housing associations had nothing more to give. The reason the money was spent so quickly was that there wasn't enough to meet demand in the first place - perhaps because the government was trying to shepherd buyers away from MyChoice HomeBuy and towards another initiative, HomeBuy Direct.

This latter scheme has proved less popular with first-timers because it only allows for the purchase of new-build properties. Nevertheless, it received an extra £80m in funding in the last budget, money many hoped would go towards MyChoice HomeBuy.

This enthusiasm for HomeBuy Direct can be accounted for by the fact that developers share the financial burden with the government, so public money goes further. It also kills two birds with one stone, points out Sue Cocking, head of affordable housing for Knight Frank.

"Because there is a problem with new properties not selling, it makes better use of resources for the government to encourage first-time buyers to purchase these empty new homes," she says. "There's a wider economic benefit."

A spokeswoman for Communities and Local Government said that £350m has been spent on Open Market HomeBuy - MyChoice HomeBuy is one of two schemes that come under this umbrella term - since April 2006, allowing 11,100 completions on house purchases.

"We have had a very positive response to our HomeBuy products, especially those available through Open Market HomeBuy, but it is just one way we are ensuring that first-time buyers have a range of options to help them on to the housing ladder. This includes HomeBuy Direct," she added.

The biggest problem with all these affordable schemes, according to Cocking, is their complicated nature.

"At the last count there were nine initiatives being offered - there's shared-equity, shared-ownership, HomeBuy Direct, Rent to HomeBuy, Immediate Rent, to give a few examples.

"People have to get their heads round all these before making an informed choice, and it isn't easy."

For an indication of just how complicated, the discussion board of the Metropolitan Home Ownership website is littered with posts from a slew of confused and frustrated first-time buyers.

Many people express the hope that they will receive funding for their new homes; others seem to be totally baffled by the system.

Paul Robson's only remaining hope is to buy the flat that he has set his heart on through yet another affordable initiative, the OwnHome Scheme (ownhome.co.uk). This is run jointly by Co-operative Bank and the property management and development company Places for People.

"I may still be able to purchase this way, but I have been told that there is every likelihood that will run out money, too," he says.

"I should hear in the next few weeks. If that does happen, I'm facing the prospect of being let down by government schemes twice."

I'm not sure I agree with the 'despair' bit. Imagine the mood of a legion of young people facing record unemployment and negative equity when saddled with a huge mortgage, which is in bed with the state as well!

Although I disagree with the model and the fact that all these bloody bureaucrats are feasting off of the governments 'good intentions', it really is a blessing in disguise for a lot of misguided and unduly trustworthy young men and women.

EDIT: un in unemployment. Makes sense now.

Edited June 28, 2009 by cashinmattress

[Akrasia]

I'm glad to see this scheme fail.

We don't want access to more credit so that we can buy houses at inflated levels, we want houses at affordable levels so that we don't need access to more credit to buy one.

The fact that even the government hasn't got the money to keep the house price bubble inflated tells you just how detached from reality house prices have got.

[Tonkers]

In a years time, when these 'unsuccesful' homebuyers realise their lucky escape, perhaps they will feel sick to their stomach that the government would have encouraged them into financial disaster. Maybe they will work it out?