The Newbuy scheme will enable mortgage advances of up to 95pc of a property's value to be made
Taxpayers to guarantee new mortgages
Adam Aiken, Editor
Monday, March 12, 2012
5:59 PM
Taxpayers will act as mortgage guarantors under a government-backed scheme designed to kick-start the housing market.
It is thought the Newbuy scheme could help as many as 100,000 people by allowing them to buy new-build homes with deposits of just 5pc, instead of the 20pc-plus requirement that has become more usual over the past few years.
The program will see a house-builder paying the mortgage lender 3.5pc of the price of a home worth up to £500,000 in England, with the government guaranteeing a further 5.5pc against any future loss. It is thought taxpayers will become liable only if there is a major property crash.
Barclays, Nationwide and Natwest said they were ready to start lending under the scheme.
“We are delighted that three lenders are launching mortgages under Newbuy, and that more are set to follow,” said Council of Mortgage Lenders director-general Paul Smee.
“These mortgages will help creditworthy borrowers who simply haven’t yet managed to build up a large enough deposit to gain access to finance to buy a newly-built home.
“Newbuy is good news for homebuyers, and potentially good news for jobs and the wider economy, too.”
Barclays is offering a mortgage with an interest rate of 4.99pc on up to 95pc of a property’s value; Natwest is offering loans with rates from 4.29pc; and Nationwide is offering loans from 5.69pc.
Although the scheme is designed to allow smaller deposits to be put down, mortgage borrowers will still be subject to the same credit-worthiness checks.
Home Builders Federation executive chairman Stewart Baseley said: “Newbuy will help thousands of people meet their aspirations to buy a new home, freeing up the housing market and helping first-time buyers and those unable to take the next step on the ladder.
“The scheme will also provide a vital kick-start for the house-builders who will be able to build the homes and create the jobs that the country desperately needs.”
Paul Winter, chief executive of Ipswich Building Society, which has its own 95pc loan-to-value mortgages, welcomed the launch of the scheme, but warned of complications.
“Currently, the scheme is available only for those wishing to move into new-builds, and there is no guarantee that the mortgage products will be available straight away.
“Whilst we commend the government for taking the initiative to support first-time buyers, this scheme has the potential to be very complicated,” he said.
However, Jonathan Samuels, chief executive of Dragonfly Property Finance, said government intervention was not the answer.
“The Newbuy guarantee scheme, like many such schemes over the years, smacks of desperation,” he said.
“The property market will come back when it is ready to come back and schemes like this are mere tinkering around the edges.
“If the government thinks this scheme will kick-start the property market then it is in Cloud Cuckoo Land. The concern is that Newbuy is intrinsically leveraged, and we know where leveraging got us in the past.
“People should buy when they are genuinely in a robust position to do so, not because a bank says they can buy.
“We all want to see more people owning their own homes but the values of conservatism should not be superimposed on the forces of the market.
“Contrarian it may be, but sometimes if something is broken, don’t fix it. If we are to have a strong property market in the long term, we should avoid quick fixes in the short term.”
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