New deposit scheme for first-time buyers

First-time buyers will soon be able to get an interest-free government loan to build a deposit
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Rise, Alperton
From £180,000: flats at Rise are part of the regeneration of a stretch of the Grand Union Canal in Alperton in north-west London, where Mount Anvil has built 60 new apartments. Call 0845 1770 009
First-time buyers were thrown a lifeline in last month's budget with a new "top-up" deposit scheme worth 20 per cent of a new-build property's value.

The Government is committing £250 million to the scheme, called FirstBuy, which will be launched in September. Londoners earning up to £73,500 a year (£60,000 elsewhere) will qualify for low-interest loans designed to supplement the minimum five per cent deposit they have already saved.

This will help would-be buyers overcome the "deposit hurdle" caused by lenders restricting mortgages to 75 per cent of a property's value.

The loans will be interest-free for the first five years, with the rate rising to 1.75 per cent in the sixth year and then one per cent above the retail price index (currently 5.5 per cent) after that. The loan can be paid back at any time or deducted from the proceeds when the property is sold.

Large housebuilders who will be delivering FirstBuy are advising buyers to register with them now and earmark a suitable property ahead of September. Developers expect to have their allocations in place by July.

Barratt already offers a shared-equity scheme called HeadStart - homes are available now at a few London developments (see below) - which is likely to be superseded by FirstBuy.

Some lenders have been quicker to respond than builders, with deals to help buyers plan their move. Clydesdale, one of the few mortgage providers to offer 95 per cent of purchase price, has launched a scheme giving £1,000 cashbacks to buyers who save regularly for a deposit. The minimum monthly amount is £200 and it has to be saved for at least 12 months to qualify for the cashback. Clydesdale is offering 6.99 per cent mortgages fixed for three years, with a £599 arrangement fee.

The average income of a first-time buyer is £33,057, according to the Council of Mortgage Lenders. Typically, lenders will offer four times income and you are more likely to get a mortgage if you have a savings record with a lender. Skipton building society is also offering deals with only a five per cent deposit, charging 6.49 per cent, with a £195 fee. The best-buy deal is a two-year fix from Newcastle building society at 5.15 per cent with a £894 fee.

Under Barratt's HeadStart scheme, buyers get full ownership of a new home with an 80 per cent mortgage and a five per cent deposit. Barratt provides a 15 per cent interest-free loan, repayable over 10 years or on resale.

HeadStart flats at Great West Quarter, Brentford, cost from £215,000. Call 020 8326 7277. At Arena, Hayes, prices start at £175,000 (call 020 8561 4503); and at Evolution, Edgware, two-bedroom flats cost from £285,000. Call 020 8238 2521.

Rise, Alperton
The sleek interiors at Rise in Alperton, in north-west London

Overlooking the Grand Union Canal

Finding a lower-priced home is one way to get round the deposit obstacle and buyers don't have to compromise on location or quality. The developer Mount Anvil has launched 60 homes overlooking the Grand Union Canal in Alperton, north-west London, priced from £180,000.

Called Rise (left), the scheme has brought a regeneration bonus to a run-down section of canal, with new moorings, commercial space, fresh landscaping with sculptures and a footbridge to Hangar Lane Tube. Call 0845 1770 009.

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