The government has launched a new scheme – ‘Newbuy’ – to help first-time buyers get on the property ladder.
Since the credit crunch, most buyers of newbuilds have only been able to borrow a maximum of 80% of the purchase price. Under the Newbuy scheme, the taxpayer guarantees part of the buyer’s mortgage, enabling those buying new-build homes to borrow up to 95% of the property’s value, with a maximum loan of £500,000.
The government also hopes NewBuy will kickstart the house-building sector.
The Council of Mortgage Lenders has welcomed the scheme – but doubts have been raised in other quarters. First, there is the fact that the taxpayer is yet again being called on to support more risky borrowing, which is partly what got us all into this trouble in the first place.
As Emma Simon points out in The Daily Telegraph, first-time buyers could be tempted to take on more debt than they can afford and end up in negative equity or, worse, default on the loan, which would then have to be covered – at least in part – by the taxpayer.
Ian Cowie, also in The Daily Telegraph, believes the scheme could push up house prices – “preventing [homes] from becoming more affordable”.
Of course, that may not end up being a problem, because actual Newbuy mortgage products are few and far between. Only three lenders – Barclays, Nationwide and NatWest – have signed up so far. While Santander and Halifax plan to offer loans later this year, some providers are said to be wary.
The interest rates on offer aren’t fantastic either, although to be fair, they are comparable with the few existing 95% loan-to-value mortgages on the market.
NatWest is offering a two-year fixed-rate mortgage at 4.29% and a five-year fixed rate at 4.99%, each with a £499 arrangement fee. Barclays has a two-year fixed rate at 4.99% and a four-year fix at 5.89%, each with a £499 fee again. With a three-year fix at 5.69% and a five-year fix at 5.99%, plus a £900 product fee and £99 booking fee (minus a £500 discount for first-time buyers), Nationwide’s products are pricier. Skipton Building Society, not part of the scheme, currently offers a 95% five-year fixed-rate mortgage at 6.29%, charging a £195 fee.
But the real problem, as Matt Griffith notes in The Guardian, is that the scheme seems to be about subsidising housebuilders rather than genuinely helping buyers get on the ladder.
Instead, says Griffith, “we need to tackle the drivers that have changed a home from a place to live into a speculative commodity and geared the nation to the hilt.” Letting house prices simply fall to affordable levels would be a good start, we’d suggest.