NewBuy scheme: What it means for first time buyers

Today Monday 12th March the NewBuy scheme was launched.
The NewBuy scheme assists buyers who have a deposit of at least 5 per cent to buy a new build home. This is a smaller deposit than is normally required. The scheme will allow more borrowers to secure up to a 95 per cent Loan to Value mortgage on new build residential properties from participating builders in England.

What NewBuy means for FTBs

The Government is backing the scheme to help those home buyers who have found themselves excluded from sections of the market because they don’t have a large enough deposit.
NewBuy is expected to assist up to 100,000 households in buying a new home. All mortgage lenders and house builders operating in England are welcome to join the scheme.
But like many other schemes before, will this actually have a significant impact on the property buyer and will it mean first time buyers are helped.

How NewBuy works?

Developers pay the lender 3.5% of the purchase price of a new-build property, while the government provides an additional guarantee of 5.5%, allowing mortgage providers to lend to people with a lower deposit than they would normally need as it reduces the risk.
This effectively means the lender lends a maximum of 91.5% LTV but is secured with an extra 5.5% from the Government.
The scheme should increase the availability of mortgages with a high loan-to-value (LTV) and the government says it will help up to 100,000 first-time buyers.

Do you qualify?

  • The scheme applies to buyers of new-build homes in England if the developer is taking part in the scheme.
  • The purchase price must be £500,000 or less
  • It must be a standard purchase (ie not shared equity or shared ownership),
  • It must be the buyer’s main home rather than a second property or one that will be rented out. Although aimed at helping people on to the housing ladder, the scheme is not exclusively for first-time buyers.
  • You only qualify if you have a minimum of 5% for the deposit.

Which lenders and builders have signed up to NewBuy?

Nationwide building society, NatWest and Barclays have already signed up, with others expected to follow suit, including Halifax by April and Santander by the middle of the year. Construction companies including Barratt, Bovis, Bellway, Linden Homes, Persimmon, Redrow and Taylor Wimpey have signed up.
Barclays is offering 95% LTV mortgages at 4.99% fixed for two years and 5.89% fixed for four years; Nationwide is offering 95% LTV mortgages at 5.69% fixed for three years and 5.99% fixed for five years; NatWest will offer 95% LTV mortgages at 4.29% fixed for two years and 4.99% fixed for five years.

PropVestment’s Thoughts

  • Firstly the property market is down by upto 50,000 transactions a month, thats 600,000 a year compared to the peak in the property market a few years ago. So even if the full 100,000 NewBuy properties are reached, it will not have a major impact on the market as a whole.
  • The scheme only helps buyers of new builds, these are not the most desirable properties, often built very fast, with out fine finishing. These properties are clones of each other and often lose significant value when it come to resell. The price is set by the builder, they will just inflate the original asking price so the 3.5% contribution by them is a false reality.
  • Although major lenders have signed up there is no indication of how many of these products they will allow or how tight other criteria may be. There may be a significant difference in the volume of NewBuy Mortgage approvals to actual potential properties in the scheme.
  • Finally what will be the location of these NewBuy properties, will we see small NewBuy villages full of first time buyers in indentical homes?

Overall PropVestment welcomes such schemes and it is a positive move by the Government, but like other schemes before we doubt there will be a significant impact in reality.
It will be more a headliner to make the government look like they are helping first time buyers.

For Official advice, see

Check out our First Time Buyers Posts on the last Government Scheme First Buy

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