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'Newbuy' mortgages launched to help first-time buyers
The government's NewBuy initiative will help 100,000 first-time buyers side-step lenders' strict deposit requirements to get a mortgage on a new-build property.
by Victoria Bischoff on Mar 12, 2012 at 11:14Follow @VBischoff
A ‘NewBuy scheme’ aimed at helping 100,000 first-time buyers get an affordable mortgage on a new-build property was launched by the government today as part of plans to restart the UK’s broken housing market.
The new scheme will enable providers to lend higher loan-to-value (LTV) mortgages to borrowers who can afford the repayments but are unable to meet lenders’ strict deposit requirements, the Council of Mortgage Lenders (CML) explained.
In the wake of the housing market crash buyers are now commonly asked to pay at least 20% of the total value of the home they wish to buy up front. With the average UK house currently costing around £200,000 plus, this means many first time buyers are simply frozen out of the market.
Under the NewBuy scheme, however, first-time buyers will be able to borrow up to 95% of the value of a new build home.
This is because the government will provide a guarantee of 5.5% of the value of the property to the lender, thereby reducing the risk should the buyer default on payments in the future.
The builders of the new home, meanwhile, will be asked to deposit 3.5% with the lender (who’ll pay interest on the sum) for seven years, after which it will be returned (minus any losses).
So far Barclays, Nationwide and NatWest have all committed to the project, today launching a range of NewBuy mortgages. Halifax and Santander, meanwhile, have also pledged support for the scheme and intend to launch NewBuy mortgage products later in the year.
To take advantage of the scheme the property buyer must be a UK resident, have at least a 5% deposit and purchase a new build property in England that is worth under £500,000 and included in the scheme.
Paul Smee, CML's director general, said: 'NewBuy is good news for home-buyers, and potentially good news for jobs and the wider economy too'.
'Lenders will not be relaxing their affordability criteria, but the scheme will enable those who can afford the repayments to have the choice to buy a home sooner than might otherwise be possible,' CML added.
Matt Hutchinson, director of property website Spareroom.co.uk, however said that while any government help for struggling first time buyers is welcome, the scheme is just 'scratching the surface of the problem'.
NewBuy mortgages launched today
|Lender||95% NewBuy mortgage||Rate||Fee|
|Nationwide||3-year fixed||5.69%||£900 product fee, £99 booking fee 9 (£500 discount for FTBs)|
|Product fee free 3 year fix||5.99%||£99 booking fee|
|5-year fixed||5.99%||£900 product fee, £99 booking fee 9 (£500 discount for FTBs)|
|Product fee free 5 year fix||6.19%||£99 booking fee|
For more information on applying for a NewBuy mortgage the CML has published a helpful guide on its website.
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