Mortgage trade bodies have welcomed the government’s proposed Your First Home scheme, while warning that its success will depend on affordability, lender participation and the availability of suitable new-build homes.

The Association of Mortgage Intermediaries (AMI) and the Intermediary Mortgage Lenders Association (IMLA) both backed the government’s decision to introduce targeted support for first-time buyers struggling to raise a deposit.

Under the proposals, eligible first-time buyers purchasing a new-build property in England will be able to put down a 2.5% deposit, supported by a 20% government-backed equity loan with an initial interest-free period.

Household income and local property price caps will be used to target the scheme, with further details expected at the Budget on 28 October.

AMI: LENDERS WILL NEED TO CONSIDER PRODUCT DESIGN

Stephanie Charman, chief executive of AMI, said the lower deposit requirement represented a significant change from the previous Help to Buy scheme, which required buyers to contribute at least 5%.

She said: “We welcome the government’s focus on helping more first-time buyers into homeownership. The deposit remains a significant barrier for many aspiring homeowners, particularly those without access to family support, and it is positive to see that the scheme will include income and property price caps to target help where it is most needed.

“The success of the scheme will depend on getting the detail right. A 2.5% deposit represents a change from the 5% minimum under the previous Help to Buy scheme and lenders will need to consider product design, systems and how these applications work in practice.”

Charman said mortgage advisers would have an important role in helping borrowers assess the scheme and the longer-term affordability of their mortgage.

She added: “We also need to understand how the property price caps will interact with existing first-time buyer Stamp Duty thresholds and whether sufficient suitable new-build homes will be available in the areas where buyers need them.

“Your First Home should be a stepping stone into sustainable homeownership, not a sticking plaster for the wider challenges facing first-time buyers. Helping people overcome the deposit hurdle is positive, but affordability remains a challenge and we need to ensure there are enough suitable homes for them to buy.”

IMLA POINTS TO FIRST-TIME BUYER SHORTFALL

IMLA, which has previously called for a successor to Help to Buy, said an equity loan could complement measures already taken by lenders to broaden access to mortgages.

The association said higher loan-to-value lending, longer mortgage terms, family-assisted products and greater flexibility around affordability had increased the options available, but raising a deposit remained an obstacle for many households.

Kate Davies, executive director of IMLA, said: “We very much welcome the government’s decision to introduce Your First Home. IMLA has been calling for targeted support for aspiring first-time buyers for some time.

“Our research estimates that around 3.5 million households who might historically have been expected to become first-time buyers have failed to do so since the financial crisis, so the scale of the challenge is considerable.”

Davies said using an equity loan structure would give the mortgage and housing industries the benefit of their experience with Help to Buy, but cautioned about restricting the scheme to new properties.

She said: “There are real advantages to building on an equity loan model with which lenders, advisers and developers are already familiar. We also have a decade of experience from Help to Buy to draw on.

“Restricting support to new-build homes can help stimulate additional supply, but it also narrows the choice available to first-time buyers and risks concentrating the benefits among developers. The design of the scheme therefore needs to ensure that support delivers genuine value for buyers as well as encouraging the building of much-needed new homes.”

Davies added: “The full details will clearly be important, but this is a very encouraging start. If Your First Home helps responsible borrowers overcome the deposit hurdle while giving developers greater confidence to build, it can support not only aspiring homeowners but the housing market and wider economy.”