Shelter’s Income and expenditure figures highlighted13:57 PM, 4th February 2019
About 3 weeks ago 35
-By Guest Columnist Daniel Coleman
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.
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