NewBuy scheme offers new hope to first-time buyers

The Government today announced the launch of its NewBuy scheme which aims to throw a life-line to a struggling property market and give first-time buyers a helping hand onto the property ladder.

Purchasers of NewBuy marketed homes will be able to apply for a 95% mortgage that is guaranteed by the developer and, as a last resort, the taxpayer. Bringing back memories of the days when 100% and even 120% mortgages were not uncommon. The scheme applies to new build homes up to the value of £500,000 and enables buyers to purchase a house with just a 5% deposit.

Despite criticism from many commentators, three of the country’s largest mortgage lenders, Nationwide, Natwest and Barclays, have already signed up to the scheme with several others, including Santander and Halifax, expected to follow suit in the coming months.

The scheme, aimed at encouraging lenders to lend by reducing their exposure to risk, requires the developer to pay 3.5% of the purchase price of the house to the lender as a guarantee against the borrower defaulting on re-payments. In addition to this the government will make a further 5.5% available if the lender has to repossess the property and it makes a loss on the sale.

Not surprisingly the scheme has been welcomed by all the major house builders and the largest builders, including Barratt, Bovis, Bellway, Linden Homes, Persimmon, Redrow and Taylor Wimpey, have already signed-up to take part.

The government estimates the scheme will help over 100,000 home buyers either take their first step onto the property ladder or move to a larger property. However, in a property market where transactions are down by 50,000 a month compared with the pre-crash years, many have described the scheme as a drop in the ocean in terms of offering any substantial, long-term boost to the property and construction sectors.

Purchasers looking to take advantage of the NewBuy scheme have been advised that the scheme does not offer them any greater protection in the event of being unable to pay-back the loan. Further, they are warned that new build homes are often priced at a premium compared with older houses and this can increase the risk of the property going into negative equity should house prices fall again.

If you are looking to take advantage of the scheme and are seeking a conveyancing quote in relation to your property purchase, contact Holmes & Hills Solicitors. We have six offices across Essex and Suffolk, located in Colchester (Marks Tey), Braintree, Sudbury, Halstead, Tiptree and Coggeshall.