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Budget 2011: Lenders’ support will be crucial for deal to help FTBs

News that the Government will provide £250m to help first-time buyers purchase new-build properties will undoubtedly be popular with the big property builders.

The scheme aims to help 10,000 FTBs enter the property market but there is little detail.

It will be funded by the Department of Communities and local government and the housebuilder. Each will provide 10 per cent of the deposit, leaving the borrower to find just 5 per cent.

The scheme targets borrowers earning a joint income of less than £60,000, the loans will be interest-free for five years and then charged at around 1.75 per cent, rising by 1 per cent above inflation each following year.

Whether or not this scheme succeeds will be down to the support of lenders.

Lenders tend to be more cautious on new-build property due to losses following the credit crunch and have strict loan to value and site exposure limits.

You would expect the lenders with some degree of state ownership, such as RBS, Lloyds Banking Group and Northern Rock, to agree to take part but others would only do so if it suits them.

If any of the big lenders opt out, then it will be difficult for the scheme to succeed as the others will not want to exceed their site exposure limits.

The scheme does nothing to help the chronic lack of funding or to help first-time sellers trying to move from their first home to a bigger property.

In a normal market FTBs would buy these properties, enabling sellers to upscale. Buyers excluded from this scheme and without generous parents will continue to struggle to buy their first home.

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