How to Get Help With a Property Deposit Through the Open Market Homebuy Scheme

Experts are warning that many will be disappointed with the UK Government's initiative to help first-time buyers on to the property ladder. The Open Market Homebuy Scheme allows those who qualify to buy from private sellers, as opposed to a housing association or other low-cost housing organisation.

The scheme works bt the Government providing a subsidy to reduce the initial costs of the mortgage and then the private sector mortgage lenders involved waive interest on part of the purchase price. However, the terms of the scheme are restrictive and the Government expects only a small number of buyers - around 20,000 per year - to qualify.

It works like this: A homebuyer selects a house in the usual way, but they only need a mortgage for 75 per cent of the purchase price. Of course they still need to demonstrate that they can afford the mortgage repayments. The 25 per cent difference is financed by two additional "equity" loans: one of 12.5 per cent of the purchase price from the private sector and another 12.5 per cent from the Government. Both these extra loans will be interest-free for the initial five years.

 

After five years, the private lender can charge interest but the Government loan remains interest free. Interest on the private lenders loan is is capped at 3 per cent until year 10 of the mortgage. But homeowners on the scheme have to pay 25 per cent of the sale proceeds from their home to the lenders when they move. This includes any rise in value ot the property.

So who is eligible to take advantage of this scheme? In theory, all first-time buyer can apply. Applications are vetted by housing associations, which issue what are called "eligibility certificates". The Government has said that priority has to be given to key workers such as nurses and teachers, as well as social housing tenants.

Buyers have to meet the scheme's rules as well as qualify for the mortgage. One advantage of the scheme is that applications are only assessed on the basis of the 75 per cent of the property's price as there are no interest or capital payments for five years on the remainder. The buyers do not have to find a deposit and there are no higher lending charges.

The drawbacks is that the scheme is complicated and may put offsome buyers. Not all mortgage lenders take part in the scheme and so the choice of lenders is currently limited to the Nationwide and Yorkshire building societies, HBOS and Advantage, which is part of Morgan Stanley. Buyers have to organise their main 75 per cent mortgage with the same lender that provides their equity loan.

One of the burning questions is what happens if property prices fall further?

If house prices fall and you sell the house at a lower price than you paid for it, the Government will bear its share of any loss, asking for 12.5 per cent of the sale price. Of commercial lenders, only Advantage will accept a reduced capital sum if house prices fall.

 

If house prices rise, and that could be some time off, then the equity lenders will demand their share of that rise. They will claim 12.5 per cent of the sale proceeds net of legal costs.

Michael Challiner is the editor for Brokers Online, one of the UK's largest finance sites. Visit Brokers Online to find out more about Home Insurance Quotes, Life Assurance Cover and much much more.

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Property Inventories And The Tenancy Deposit Scheme - How The Two Interact

In rental agreements there is provision for a landlord to receive a deposit or a bond at the beginning of the tenancy contract. The primary function of the deposit or bond is to serve as security against financial losses incurred by the landlord if a tenant fails to carry out its obligations of the agreement. The amount of deposit received by the landlord can be a substantial amount. The deposit does not constitute income to the landlord and should be returned to the tenant at the end of the tenancy if the tenant has faithfully carried out his or her obligations.

However, life is not that simple and there are sometimes bad people on either side of the contract on both the landlord or the tenant side. For example, you can get landlords who don't return the deposit to the tenant at the end of the tenancy. You also get tenants that mistreat and damage a property or pay rent irregularly.

To help alleviate a number of the problems associated with deposits, some countries have introduced schemes to prevent the misuse of the deposit. In the United Kingdom this is known as the Tenancy Deposit Scheme. The Tenancy Deposit Scheme regulates the deposit since it is a legal requirement for a landlord to protect the deposit very soon after the landlord has received it at the beginning of the tenancy.

Protection of the deposit can be achieved in two ways. One way is by the landlord passing the deposit amount to a government approved organisation who looks after the money on both parties behalf. The second way is for the landlord to get an insurance certificate from a government approved company. With the second method the deposit will be held with the landlord for the entire duration of the tenancy until the tenant has vacated the property. If the landlord has not returned the deposit at the end of the lease then the tenant can contact the administrators of the Tenancy Deposit Scheme to claim the money through arbitration. Arbitration will look at both sides' cases to see if there are any legitimate reasons for the landlord to withhold the deposit.

Property inventories become important in deposit dispute situations because these documents can be submitted as written evidence to support their cases. Most often, the burden of proof is for the landlord to submit reasons why a deposit should be withheld by the landlord. If the reasons are to do with property damage then the relevant document to submit is the property inventory. The property inventory is a comprehensively written document signed by the tenant which states the condition and contents of the property when the tenant first moved into the property. The landlord should also submit evidence of the condition of the property at the time the tenant vacates it. Any differences in the property at the time the tenant first moved in and the time the tenant moves out will give a good indication of how the tenant has or has not taken care of the property. It is imperative therefore that all landlords should record property inventories before it is rented out since the case for withholding a deposit will be very weak if there is no written account of the starting condition of the property.

Property inventories can be written by companies who specialise in the documentation of the condition and contents of houses and apartments. These same property inventory services companies can also help in the mediation between the landlord and tenant if there is property damage to prevent the necessity to go to arbitration under the Tenancy Deposit Scheme. The desire by the government is for the landlord and tenant to work things out together before it goes to arbitration and property inventory services companies do have lot of experience in mediating things before other instruments of resolution are needed.

If you would like to discover more about property inventories or about how specialist property services companies can help in tenancy deposit disputes, visit property inventory services.

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