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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 11:14

'Newbuy' mortgages launched to help first-time buyers

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'.

'Until lenders across the board relax their lending criteria, it is going to continue to be an uphill struggle for first time buyers,' he warned.

Critics, meanwhile, claim the the NewBuy scheme is just a badly disguised attempt to help the construction industry.

NewBuy mortgages launched today

Lender 95% NewBuy mortgage Rate Fee
Barclays 2-year fixed 4.99% £499
  4-year fixed 5.89% £499
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
NatWest 2-year fixed 4.29% £499
  5-year fixed 4.99% £499

For more information on applying for a NewBuy mortgage the CML has published a helpful guide on its website.

17 comments so far. Why not have your say?

Mark Wadsworth

Mar 12, 2012 at 12:32

They own land! Give them money!

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Yehipers

Mar 12, 2012 at 12:44

is it so bad to boost the construction industry? I read recently that 1 new build = x jobs in the wider community (ive forgotten the actual number!!) ... building shouldn't be our only way of trying to get out of the mess we are in, but it should be recognised as one of the few areas in which there is an actual need for the end product.

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fiona mellor

Mar 12, 2012 at 13:09

Not really a scheme to help FTB's, more a scheme to help housebuilders.

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Steve P

Mar 12, 2012 at 13:29

I agree with fiona.

"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" - That'll be a typical new build that's overpriced in the first place, with hideous service charges to boot.

You'd be better off getting a 'normal' mortgage on a 'second-hand' house.

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Bob Riach

Mar 12, 2012 at 15:37

And will they explain about the possible negative equity for first time buyers buying these properties with such a small deposit and with many new builds overpriced by the builders to cover the cost of all the so called FREE offers they include to tempt buyers, is this not why most lenders will only lend 80% on new build houses and 75% on flats.

The government appears to be using this scheme to boost the building trade and employment, but not considering the first time buyers buying over valued new builds that could leave them in a negative equity position as soon as they move in. and they could be trapped in the property for same time waiting for prices to rise before they can sell and move up the ladder.

I national developer in my area is offering 100% mortgages on certain properties. How can this be good financial advice and how can lenders be seen to be lending responsibly.

Also if this scheme is successful for new builds, I could cause more problems in the resale market place when house sales are already very poor, if first time buyers don’t buy in the resale market, then the sellers will not be able to move up, this will spiral upwards

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joe stalin

Mar 12, 2012 at 16:05

never ceases to amause me how many misserable b#g#ers are out there when it comes to housing. So what? let the government give people a hand who want to have their house. why should those who want to have a new built roof over their heads be condemned to living on the street in card board boxes by some miserable bunch of individuals who no doubt live in house with a nice little garden in some nice little suburb. Too much hypocricy. get a life for goodness sake and share in the joy of the new homeowners. Buy the builders how many more times does this have to be spelled out?

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majic

Mar 12, 2012 at 16:07

Yet another scheme to help the house builders, one of the Tories paymasters - and at the same time keep up the value of the MPs' property portfolios.

When will these politicians learn to let the market look after itself? All this scheme is doing is perpetuating the bubble and deferring the grief for a few more years.

Far better that they should let property prices fall, then FTBs could get on the mythical ladder without putting themselves into, tax payer subsidised" hock.

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Anthony West

Mar 12, 2012 at 16:55

How is helping FTB in to new houses going to help the property market in general? surely, couples who want to get a bigger house for a growing family need FTB's to buy their houses while they buy bigger ones?

In the long run, it doesnt tackle the issue of educating first time buyers in the fact that they need a decent deposit in the first place! i bought my first house in 2009 aged 23 with more than 10% deposit because from as long as i can remember my parents said you cant buy a house with out at least 10% deposit. I went for 4 years with no holidays as I knew I would have to save hard to get my first house.

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Anthony West

Mar 12, 2012 at 16:59

How is helping FTB in to new houses going to help the property market in general? surely, couples who want to get a bigger house for a growing family need FTB's to buy their houses while they buy bigger ones?

In the long run, it doesnt tackle the issue of educating first time buyers in the fact that they need a decent deposit in the first place! i bought my first house in 2009 aged 23 with more than 10% deposit because from as long as i can remember my parents said you cant buy a house with out at least 10% deposit. I went for 4 years with no holidays as I knew I would have to save hard to get my first house.

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Clive B

Mar 12, 2012 at 18:07

joe stalin

I think you're looking at this back-to-front. Real problem is a massive shortage of housing, caused by successive governments (including this one) having absolutely no house-building policy.

Answer isn't to throw our tax money at people, incurring a risk of default.

Clive

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Dislexic Landlord

Mar 12, 2012 at 18:24

This is not where the help is needed >

We need hoise prices to fall new builds are expencive

looking in my area new build two bed house 142k

you can buy an older home for 79k in the same street

so where do FTB need help you guess

also we all know intrest rates can only go up so why are the banks offering 2 year fixed

all new purchase should be 10 year fixed as least

I buy property all the time and as an expericed invester i never borrow unless its fixed long term over 5 years and im now borrowing at 10 year fixed

we learn nothing all we do is go around in circles

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Anonymous 1 needed this 'off the record'

Mar 12, 2012 at 18:40

Yep, keep trying to distort the market by throwing tax payers 'money' at it..... after all it is only paper and the Govt. can print more.

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Alan Tonks

Mar 12, 2012 at 20:05

joe stalin

It never ceases to amaze me that there are so many people like you about.

Firstly they are not giving the people a hand as you say; they are simple propping the house builders up.

Secondly they are going against their own strict deposit requirements, another misleading act by our pathetic Government.

Thirdly you write about hypocrisy at least I think it was, because if it was, you obviously don’t have a clue about the meaning.

I would say this on finishing, you have rather an apt name and your spelling is atrocious, are you a communist perchance.

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Roger Savage

Mar 12, 2012 at 21:40

I disagree Alan, most certainly not with your overall comment but I don't think Joe Stalin is a communist, I think he probably works for one of the housebuilders that stand to benefit from putting up flimsy boxes that they can charge even more for than they could before this scheme.

The story doesn't make it clear that NewBuy is only available on selected plots (i.e. ones they can't shift, probably!)

Stalin - why should the taxpayer subsidise greedy housebuilders? If they want to sell their boxes, they should be subject to market forces - i.e. can't sell something, reduce the price. The taxpayer should have no part in it.

Alan is absolutely right - this has nothing to do with helping first time buyers - it's about helping those who have been helping themselves for years - i.e. the greedy developers. If help was really the motive, the housebuilders would have to reduce prices to generate interest - back to market forces again.

If they didn't put something by during the years they leeched off ever soaring house prices then tough, they should be left to crash and burn. You can't have capitalism on the way up and state assistance on the way down! Talk about having your cake and scoffing it!

The sort of situation have now is something akin to a twisted mix of state assisted capitalism - for builders and banks, sold under the sickeningly propagandist wrapper of being for the common good - e.g. myths about housing shortages, etc... I doubt the latter anyway, but if so - for goodness sake reduce the immigration rate then!

Still, no doubt places on the boards of banks and builders for politicians who have done them a good turn. After all, I'm sure the current FirstBuy and NewBuy have nothing to do with party donations...

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joe stalin

Mar 13, 2012 at 07:56

It strikes me that every time the subject on this investment board turns to housing the conversation seems to be dominated by a few bitter individuals who no doubt are in the fortunate position to have paid off their mortgages af ew years ago. Lets get a couple of things clear I invest for a living and I am not employed in the housing sector. I have had careers in the oil industry and investment banking and while I have worked in Russia I don't believe I was "turned". As far as I am aware there appears to be a shortage of housing particularly in the regions of this country where people would like g to live and work and where there has not a lot of speculative development to lure the "urban professional". The Govt scheme as far as can tell does not involve handouts rather it seeks to provide some for of guarantee to FTB's in tandem with the house builders. Like it or not the building sector provides employment for many and as such a healthy building sector is necessary if this country is to embark on some form of economic recovery. Sure house prices are high but then this again is regional and may have something to do with the influx of foreign investment and the knock on effect that result. The growth in buy-to-let is another factor placing more housing into fewer hands. with interest rates likely to remain low for some time yet ,yields of 6-7% are only going to attract more money to this sector. As I said, I invest to make money so that I can pay my school fees and have some reasonable retirement to look forward to and in my opinion the house builders offer an attractive investment opportunity, as by and large they have put their own houses in order and are now capable of making more out of less.

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Roger Savage

Mar 13, 2012 at 23:00

Ah, I suspected you might of been a 'banker' Joe, explains a lot of your comments.

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joe stalin

Mar 14, 2012 at 09:08

Oh really, I got out 8 years ago to look to do my own thing and support my kids on the touchline, which I am still fortunate enough to be able to do! As far as I am aware this is an investment board where participants exchange investment ideas and not a forum for moralising. As I said I invest to pay the school bills and provide for my retirement and get my kids on the housing ladder.

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