First-time buyer loan scheme to set £140,000 London earnings cap

The government’s planned Your First Home scheme will have household earnings caps of £110,000 outside London and £140,000 in London, according to a BBC report. The limits are expected to be confirmed in next week’s Budget.

The scheme is intended to help first-time buyers in England purchase newly built homes with deposits as low as 2.5%. It will offer government-backed equity loans worth 20% of properties bought from participating developers, with an initial interest-free period.

The BBC, citing The Times, reported that ministers had first considered lower caps of £90,000 outside London and £110,000 in the capital. They changed course after concluding the original limits would exclude too many middle-earning couples, including teachers and nurses.

The government has not yet provided details of which budgets will fund the scheme, although it says the money will come from within existing spending. Participating developers will also be asked to contribute towards running costs.

The policy has drawn criticism over its potential impact on house prices. Previous buyer-support schemes did not have income limits and were criticised for allowing relatively wealthy households to borrow more. The Conservatives have called the new proposals a “colossal admission of failure” over Labour’s housebuilding record and warned that a levy on developers could push up new-home prices.

The Home Builders Federation, which represents developers, has welcomed the plans and urged the government to establish the scheme quickly.

The proposal uses equity loans linked to changes in a property’s value, as did the earlier Help to Buy programme. That scheme initially allowed buyers to put down a 5% deposit on a new-build home and borrow up to 20% of its cost through an interest-free loan for the first five years.