The NewBuy scheme has now ended. For other schemes, please go to www.helptobuy.gov.uk
Last week the government launched the Newbuy scheme. This is an initiative with the aim of helping those buyers who are unable to raise the large deposits needed to get a mortgage in the current market. The official website can be found here. David Cameron told the Telegraph that he believes Newbuy will ‘unblock’ the market.
The scheme is open to those people who wish to buy a new-build property in England up to £500,000, as long as the developer has joined the scheme. The buyer must provide between 5 and 10% of the property purchase price as a deposit. The property must be the main home of the buyer, and this scheme cannot be used for buy-to-let.
Other restrictions to the scheme include that the buyer must be a UK citizen or have the right to remain indefinitely in the country and that it is not available for shared equity purchases. It also cannot be used on interest-only mortgages.
When a property is purchased using the Newbuy scheme, the developer pays 3.5% of the purchase price into an indemnity fund. The government provides a guarantee of 5.5% of the purchase price. If a lender later tries to repossess the property but cannot recover all of the money borrowed, it can use the indemnity fund, or use the government guarantee to retrieve some of the money owed.
The main aim of the scheme is that it will allow those with small deposits, and especially first-time buyers to get mortgage finance. This should then boost demand, to help kick start the market. The BBC reports
that it is hoped the scheme will lead to an extra 100,000 new-build properties being sold.
There are some limitations to the scheme. Currently only three lenders (Nationwide, Natwest and Barclays) have signed up, although others including Halifax and Santander are expected to join soon. The number of mortgages available in the scheme is limited.
The CML has produced some guidance on the Newbuy scheme which can be found here. In this some other possible issues are raised. The CML notes that some new-build properties include a premium so that the value of the property reduces once some moves into the property. The CML suggests that this scheme is best for those who are planning to live in the property for several years.
The main result of the scheme is that it provides extra security to lenders, in the event of mortgage default, to be able to recover the money owing. It remains to be seen whether this will boost the property market, or if the fact that it is for new properties only will limit its effect.
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