First ever government-backed mortgage indemnity scheme set to launch in March

First ever government-backed mortgage indemnity scheme set to launch in March

13:44 PM, 17th February 2012, About 12 years ago 4

Text Size

-By Guest Columnist Daniel Coleman

The first ever government-backed mortgage indemnity scheme is set to be officially launched within the next few weeks. The NewBuy Guarantee scheme which takes off in March, aims to help 100,000 homebuyers who only have access to a five percent deposit to purchase a new-build property, in order to kick-start the housing market.

Under the new programme, developed jointly by the Home Builders Federation and Council of Mortgage Lenders, 95 percent mortgages will be made available to people spending up to the value of £500,000, a larger value than expected, on a new-build property. This will be great news for first-time buyers in the capital, where the average price of housing is much higher than anywhere else in the UK and also for existing homeowners who are looking to move up the property ladder into bigger homes.

Under the policy, lenders will be protected against monetary losses caused by further dips in the housing market. Housing developers will deposit 3.5 percent of a property’s value with participating lenders, and the government will provide a ‘top-up’ guarantee of 5.5 per cent.

Because of this, mortgage lenders will be able to offer larger loans on new-build properties without having to take on all of the risk, with the mortgage indemnity funded by developers and taxpayers who have joined the scheme, they will be guaranteed not to lose money if the property either falls into negative equity or is repossessed.

The strategy hopes to encourage first-time buyers back into the market, including 100,000 buyers currently unable to get their foot on the property ladder due to a lack of finance. The Housing Minister has confirmed the programme will be open to existing homeowners as well as first time buyers, the only criteria is that borrowers must be UK citizens and are buying the property to use as their main home.

At the moment, rates on low deposit mortgages remain cripplingly high and those wishing to move home in order to accommodate expanding families have been left struggling as falling house prices have left some with small amounts of equity to put towards buying a new property. However the NewBuy Guarantee scheme could help those with a deposit of just £10,000 to become homeowners, provide support for those in need of affordable housing who have been left on social housing waiting lists and help to get the construction of new-build properties on the move.

Although the scheme is being launched next month, the government is still ironing out the finer details. The Council of Mortgage Lenders has stated that discussions about the scheme are ongoing and the £500,000 cap on the value of properties for inclusion could very well vary across the UK.

Whether the mortgages under the NewBuy scheme will be priced or if lenders will even be able to price them at more competitive rates than existing 95 per cent deals available, still remains to be seen, yet it has been established that all mortgage lenders and house builders will be welcome to join the programme.

Experts have warned borrowers must keep in mind that their own liability will stay the same as with any other mortgage, though the NewBuy indemnity scheme will enable them to obtain a higher loan-to-value mortgage.

On top of this, there is no guarantee that the overall supply of mortgage finance will be boosted by the indemnity scheme, however it will certainly help to increase the number of 95 percent mortgages available, making things easier for buyers who cannot get on to the property ladder at the moment because of high deposit requirements.

Share This Article


15:05 PM, 17th February 2012, About 12 years ago

Shape it is only new build, I would consider depositing 3.5 percent of a
property’s value with a lender for a few years if it helped us get a good sale.

14:37 PM, 18th February 2012, About 12 years ago

It's a stupid idea, it's just designed to benefit developers not first time buyers.  Any first time buyer going into this will be trapped in negative equity.  The properties are overvalued new builds in a falling market, that 5% deposit will evaporate instantly.  What happens when they need to move to a bigger house and prices have fallen 15-20%?

Mark Alexander - Founder of Property118

15:52 PM, 18th February 2012, About 12 years ago

For once we seem to be able to agree of something! The cost to the developer is insignificant compared to the discounts they are offering to property clubs to attract investors. All this will do is use first time buyers to provide higher comparible sale prices.

0:26 AM, 19th February 2012, About 12 years ago

I was going to say the same thing Mark.
brit1164 has at last said something correct
Being a total cynic govt intervention would support shareholder value in building companies and I'm sure the condems have some chums in the housebuilding world.
So effectively some state subsidy to support share values; I'm sure us taxpayers are highly delighted we arte being used for supporting incorrectly valued new-build property.
Just think of all those expensive landbanks the housebuilders have built up and they won't build on because they want to make more profit.
There is more than enough places for properety to be built; it is just the housebuilders refusing to build.
The land was purchased at a time when they expected to sell property at 2008 prices.
There has been a paradigm shift in the housing market; largely led by a massive reduction in the availabilility in credit.
The revised downward lending criteria will force prices down to the extent that new-builds will be of little value until the 1st purchaser has taken the hit then it will revert to true value and the puchaser will have lost about £400000..
Even if one wanted to buy a new-build the lending criteria is so onerous that nobody will be able to buy anyway.
The only reason property values haven't dropped by about £400000 each is low interest rates and people refusing to sell at a loss, some of whom can't sell as they have negative equity.
So they become 'accidental landlords' and will remain so until the negative equity restores itself to hopefully positive equity.
Futher downward pressure will occur if EU BTL regulation comes in and LL have to offload property they cannot remortgage and no new BTL purchasing will occur unless the LL is very, very rich.
If the lenders come up with a work around then the EU regulation may not actually afrect LL.
It would put off the average first timer or small LL who won't wish to bother with any work around procedures; this will have a further depressive effect on the housing market.
No what the govt should be doing is putting the country to work with a massive social house building campaign, effectively restoring the 'family silver' in the form of council housing stock that was so disasterously sold off by Thatcher.
Once built the housing should go to those at the top of the list and NOT those in greater housing need.
This would restore fairness to the social housing scene which for years since Labour introduced the 'housing need 'concept' has effectively excluded poeple who went on the 'list' and have found themselves continually queue jumped by your Romanian gypsy with 4 kids, your Somalian alleged refugee,
your eastern european economic migrant.
All the houses should be built by BRITISH workers, no cheap eastern european labour.
Eventually the govt will get payback in the form of lower housing benefit payments and the only people who would suffer from a restoration in social housing are LL in the LHA sector.
I wouldn't object to that occurring!

Leave Comments

In order to post comments you will need to Sign In or Sign Up for a FREE Membership


Don't have an account? Sign Up

Landlord Tax Planning Book Now