Thinking outside the box to solve First Time Buyers equation

Published: 24/11/2011

The Government is launching a new scheme in England to help first time buyers find their footing on the property ladder.

Prime Minister, David Cameron, and his Deputy, Nick Clegg, yesterday unveiled plans to introduce taxpayer-backed 95 per cent mortgages as well as a £400m pot to build 16,000 new homes, all in a bid to help the estimated 100,000 first time buyers currently frozen out of the property market.

The plans are designed to break the current cycle in which “lenders won’t lend, builders can’t build and buyers can’t buy”¹.

The scheme will allow FTBs to take out a 95% loan at around 6 - 6.5 per cent. However, lenders will only be at risk for between 80 - 85 per cent of the money with the taxpayer and developers sharing the cost if the buyer defaults.

However, the initiative has been met with criticism, from both the Labour Party and lenders alike; one lender making his feelings perfectly clear when it described the plans as “welcome as a cup of cold sick.”

The plight of the first time buyer has been well documented, and one that appears to have no simple solution. This is prompting the industry to think outside the box.

Property firm, The Gentoo Group, has just launched an alternative to 100 per cent loan-to-value (LTV); a home purchase plan, called Genie, which allows buyers to acquire an increasing share in their property through a structured 25-year payment plan.

Although currently only available on 60 new-build homes in the North East of England, the company has plans to roll out the initiative nationwide as well as also eventually making it available via brokers.

Peter Walls is the Chief Executive of Gentoo Group:

“Genie has been in development for two years and we genuinely believe that it addresses one of the major housing issues of our generation. It removes two significant barriers to homeownership – the need for a large deposit and a mortgage.”²

First time buyers who embark on the scheme will have the same rights as a traditional homeowner. They will pay a monthly residence fee – as they would a standard mortgage – which is adjusted every five years and should they wish to opt out, they can sell their share of the property at any time, either back to Gentoo or by putting it on to the open market.

¹The Guardian (Nov 2011)
²Mortgage Strategy (Nov 2011)

Content correct at time of publication