Key workers and first-time buyers are being locked out of government-backed homeowner schemes because banks are refusing to lend on some properties. Times Money has discovered that mortgage applications are being rejected at the eleventh hour because lenders are unhappy with restrictions that local authorities are writing into the leases of sharedownership developments.

It is a further blow for new buyers, who have already been hit by the closure of the Government’s MyChoice shared-equity scheme and by lenders insisting on larger deposits for the few remaining initiatives. Here Times Money looks at the help available for first-time buyers considering a new-build property, surveys the potential pitfalls and considers the alternatives.

NewBuild HomeBuy

Shared ownership, which the Government has rebranded NewBuild HomeBuy, allows buyers to acquire between 25 per cent and 75 per cent of a new home, with a housing association retaining the remaining share of the property. Households can then increase the size of their stake in a process known as “staircasing”.

Buyers typically get a mortgage to purchase their share of the home, but lenders are increasingly wary about the schemes. Local authorities can insist that affordable homes are earmarked for key workers or buyers from the local community indefinitely. Councils can also insist that the homes are never sold for more than a multiple of the average local income.

Halifax and Abbey refuse to lend on homes with such restrictions because they would be harder to resell if repossessed. Buyers should check the restrictions before applying for a loan. Not all developments have the same rules.

Mortgage rates for shared ownership mortgage deals are also climbing as lenders introduce specific loans for the shared-ownership market.

David Hollingworth, of London & Country, the broker, says: “You would have previously been able to choose from the traditional range of deals but now buyers are steered towards a specific range of more expensive loans.”

Nic Bealey, of L&Q, the housing association, says: “Shared ownership has gained a difficult reputation among lenders and many are backing away from offering loans. In instances where we can secure deals it is taking a lot longer. It used to take six weeks to process an application but now it can take four or five months,” To find your local housing association, call the Homes and Communities Agency (HCA) on 0300 1234 500 or visit www.homesandcommunities.co.uk. For more information on applying, contact your local HomeBuy agent.

HomeBuy Direct

In the past month Halifax has begun to insist that borrowers applying for the government-backed shared-equity scheme put down a deposit, thereby going against the initial aim of the proposals. Nationwide Building Society already requires a deposit.

The scheme is open to key workers, first-time buyers and those earning less than £60,000. Buyers are expected to find a loan for a minimum of 70 per cent of the cost of the new home from a lender, with the Government and a developer jointly providing an equity loan for the rest, replacing the need for borrowers to find a deposit.

The scheme was designed to help buyers after the disappearance of 100 per cent loan-to-value (LTV) mortgages. Like those deals, HomeBuy Direct in theory means that first-time buyers do not need to save a deposit. But Halifax now requires borrowers to put down some money. The lender will offer up to 90 per cent of the 70 per cent component of a shared equity deal. However, the higher this proportion, the more expensive the loans.

Halifax charges a fixed rate of 7.2 per cent for a five-year deal that is up to 90 per cent of the value of the 70 per cent mortgage component. A two-year fixed-rate deal that is only 75 per cent of this component carries a lower rate, of 4.89 per cent.

Royal Bank of Scotland still does not require a deposit. It offers a four-year fix up to 85 per cent of the property’s value at a rate of 6.29 per cent.

Mr Hollingworth says: “We have gradually seen more lenders insist on a deposit. It is now virtually impossible for borrowers to get on to the property ladder without some kind of deposit.”

Developers’ offers

Developers commonly offer their own deals, which are separate from the government-backed schemes.

These offers are aimed at first-time buyers and key workers and can range from cashback and free furnishings to interest-free loans that mean that less of a mortgage is required. For example, Head Start, from Barratt, enables first-time buyers and key workers to borrow 15 per cent of the value of the new home worth up to £300,000 interest-free. Buyers are required to put down a 5 per cent deposit and secure the other 80 per cent as a mortgage from a bank or building society. An 80 per cent LTV deal is considerably cheaper and more easily available than higher LTV deals.

However, buyers need to check the small print. With the Barratt deal, for example, the 15 per cent loan must be repaid within ten years.

Smartnewhomes.com lists the deals available from developers nationwide.

Rent to HomeBuy

Would-be buyers who are struggling to build up the deposit required to get a mortgage could opt for the the Rent to HomeBuy scheme. Participants can rent a home for up to five years at no more than 80 per cent of market value before buying.

Buyers can take advantage of the NewBuild HomeBuy scheme at any point in this period, so only 50 per cent of the property value is required.

The period of renting is designed to allow households to save up the deposit required to purchase the property.

Like other schemes within the HomeBuy umbrella, it is only available to buyers earning less than £60,000. For more information, contact your local HomeBuy agent.

Other initiatives

There are a number of other smaller schemes. The First-Time Buyer initiative helps young buyers with a government loan to the housebuilder.

The Government then has an entitlement to a share of the future sale price. Homeowners pay nothing for the loan for first three years, then 1 per cent of the loan a year, increasing to 3 per cent after five years. The loan is repaid when the property is sold.

For more information on these and other deals, buyers should contact the HCA or visit direct.gov.uk.

Case study: teacher baffled by affordable housing

Sophie Greenaway, left, has incurred thousands of pounds in legal fees negotiating with Halifax over the purchase of a house on the outskirts of Reading. In April the 29-year-old teacher responded to an advertisment for an affordable housing scheme. She applied to Tower Homes and was approved for shared ownership. She paid a deposit but then ran into problems with the mortgage application.

Abbey refused to offer her a mortgage and then Halifax also insisted that it was unable to provide a loan, citing restrictions in the lease, which meant that it could only be occupied by key workers from the local area. The bank was concerned that if it had to repossess the property, the small print would cause delays.

Ms Greenaway says: “It has been extremely frustrating. I don’t understand why local authorities build homes for key workers if key workers can’t get mortgages to buy them.”

Halifax told Ms Greenaway eventually that it would approve her loan application if the local authority wrote to the bank offering to waive some of the terms in the lease. The council has written to Halifax this week to do so.