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HomeBuy Direct (closed)

This content applies to England

How the HomeBuy Direct shared equity scheme works. Homebuy Direct is no longer open to new applicants.

HomeBuy Direct is a shared equity scheme designed to help people buy a newly built property on selected sites with the assistance of two equity loans. The purchaser has 100 per cent title to their home. An alternative shared equity scheme is the Help to Buy equity loan scheme. See the page Help to Buy equity loan scheme for more information.

How the scheme works

Applicants cover at least 70 per cent of the purchase price of the property with savings or a mortgage loan from a qualifying lender. The remaining share of the price is covered by two equal loans, one from the Homes and Communities Agency (HCA) and one from the participating developer.

For the first five years of ownership there is nothing to pay on the loans from the HCA and the developer. After five years, the owner-occupier will have to pay a fee through their HomeBuy Agent of 1.75 per cent per annum on the outstanding amount of the loans. The fee then increases each subsequent year and is calculated by adding the Retail Price Index (RPI) rate to a fixed 1 per cent (eg 2.6 per cent RPI + 1 per cent = 3.6 per cent per annum).

After 12 months of ownership the owner-occupier can make part repayments of the equity loans in ten per cent tranches up to 100 per cent. This process is known as ‘staircasing’ (but not to be confused with how a shared ownership owner can increase her/his share of the property, also known as Staircasing).

Who can apply

The scheme is open to people earning less than £60,000 a year who would otherwise be unable to buy a home. The following categories of people are eligible to apply:

  • first-time buyers
  • previous homeowners who cannot afford to buy now without help
  • tenants of private registered providers of social housing (PRPSHs) and local authorities
  • key workers (see the page on Key Worker Living programme for information about who is included).

Priority is generally given to PRPSH or local authority tenants and key workers.

Additional criteria

In order to qualify for HomeBuy Direct, applicants must also:

  • be able to demonstrate that they have access to savings or sufficient funds to pay any deposit (which may be five per cent or more of the purchase price), legal fees, stamp duty and other costs of moving
  • be able to sustain home ownership in the longer term
  • not be homeowners or named on a mortgage already (if an applicant has had their name on a mortgage they will have to provide evidence that it has been (or is in process of being) removed)
  • have a good credit history
  • be able to take out a mortgage with a qualifying lender.

Joint applications

A maximum of three or four people can buy a home jointly through HomeBuy Direct, as long as their joint income and savings are less than £60,000 per annum. Anyone joining in the application who already owns or part-owns a home must sell it to be able to participate.

Types of property available

HomeBuy Direct homes are only available on designated developments where the HCA has an agreement with the developer to offer homes for sale through HomeBuy Direct. The property is sold with vacant possession. Most properties on sale will be leasehold with the developer acting as freeholder, although some of them could be freehold. The maximum value of homes purchased through HomeBuy Direct is £300,000.

To ensure that the scheme is accessible to expanding families, the scheme allows the purchase of a property one bedroom larger than the household's current need.

How to apply

Applications are dealt with by HomeBuy agents, who register the applicant's interest, assess eligibility and provide details of the scheme in the applicant's area. Potential applicants should contact their local HomeBuy agent to find out more about applying.

Security of tenure

Buyers are owner-occupiers and will own either the freehold or the leasehold. Even if the owner-occupier has a mortgage for less than the full purchase price of the property, s/he is the legal owner with 100 per cent title to the property. The HCA and the developer’s entitlement to a share of the future sale proceeds is secured through second charges on the property. The mortgage lender secures its lending through a first charge on the same property.

See the Home ownership section for information on the rights and responsibilities of owner-occupiers.

The equity loan

The amount borrowed by the applicant through the loans from the HCA and the developer represents a percentage of the value of the property. As the value of the property increases over time, so the amount to be repaid by the applicant increases. Conversely, if the value of the property decreases over time, the amount to be repaid decreases.

The owner-occupier will need to repay the loans in full when:

  • the property is sold
  • 25 years have passed since the purchase
  • s/he becomes insolvent
  • s/he no longer lives in the property - with joint applications this is when the last of the original applicants no longer lives in the property
  • the mortgage from the qualifying lender is repaid in full.

Prior consent needed

The owner-occupier must notify and seek prior consent from both the equity loan providers and mortgage lender before s/he:

  • makes improvements and alterations to the property
  • takes out further loans to be secured against the property or re-mortgages
  • sells the property
  • repays the equity loans early.

The owner-occupier should seek detailed advice from her/his HomeBuy agent or an independent financial adviser before proceeding on any of the above.

Wales

The information on this page applies only to England. Go to Shelter Cymru for information relating to Wales.

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