This is a boon for first-time buyers struggling to save a large deposit. Lloyds Banking Group, which includes Halifax, has made £10 billion of funding available and says up to 80,000 buyers will benefit.
The move plugs a hole in the Government’s Help to Buy initiative. Phase two of this scheme, launched in September last year, provides a 20 per cent mortgage guarantee allowing lenders to advance 95 per cent loans on properties up to £600,000, but banks and building societies had restricted such high lending to second-hand homes, fearing developers could inflate the price of new builds and borrowers could be left vulnerable in the event of rising interest rates or a market downturn.
Lloyds Banking Group, which provides one in four of all mortgages, believes there is now equilibrium in the market and is extending the offer to cover a panel of builders. Two-year fixed rates start at 5.19 per cent.
Borrowers who are able to muster a bigger deposit can get a far more competitive mortgage rate. Skipton Building Society’s range of fixed-rate mortgages starts at 2.35 per cent at 60 per cent loan to value, rising to 3.75 per cent for a five-year fix at 75 per cent loan to value.
IMAGE GALLERY: Browse new-build homes under £250,000
The Council of Mortgage Lenders insists there is no slump in mortgage demand, despite tougher borrowing rules introduced last month and signs of a slowdown in the London property market. Latest figures show the number of loans to first-time buyers has reached its highest level since November 2007.
London property prices jumped 18.7 per cent on average over the last year. To prevent another credit boom followed by a bust, the Bank of England is urging lenders to ensure borrowers can cope with a three percentage point increase in interest rates.
From October, lenders will restrict to 15 per cent the number of mortgages to people borrowing 4.5 times income. Nationally, nine per cent of new loans are at 4.5 or more times income but the figure is 19 per cent in London, according to the Council of Mortgage Lenders.
Baroness Valentine, chief executive of London First, which represents various property firms, says trumping everything is the issue of supply and demand. “We are building less than half the houses we need each year and until we change that, London will remain a very expensive place to live.”
Help to Buy equity loans have helped 13,000 first-time buyers get on the ladder, and by confirming its support for the scheme until 2020, the Government has given a big boost to the construction industry.
“The top five housebuilders have all committed to a significant increase in new builds over the next three years and this supply boost is beginning to slow the rate of inflation on new builds,” says Andy Frankish, director at the Mortgage Advice Bureau.