NewBuy scheme opens the door to first-time buyers

The Government-backed NewBuy scheme aims to get 100,000 people on the property ladder — and give the construction industry a boost into the bargain — by offering 95 per cent mortgages.

It could prove a real boon for young Londoners, who have been having to find deposits of up to £80,000. Indeed, so desperate are they to get on the first rung that in the week since the launch, 20,000 have registered interest with Barratt, one of the developers opting into the scheme.

'The key thing is that buyers will no longer need huge deposits of up to 20 per cent. This is a game-changer for creditworthy buyers'

You apply through the developer and homes up £500,000 will qualify. This high figure is to ensure that would-be owners in comparatively expensive London and the South East are able to take advantage of the scheme. Seven of the UK’s largest builders have agreements in place with lenders, and dozens more are in the pipeline. Barclays, NatWest and Nationwide are the first to unveil NewBuy Mortgages.

Barclays offers two-year and four-year fixed-rate deals at 4.99 per cent and 5.89 per cent respectively. Nationwide has three-year and five-year fixes at 5.69 per cent and 5.99 per cent, with a £500 arrangement fee discount for first-time buyers. Lenders recommend fixed rates because they protect borrowers from interest rate increases.

Barclays says someone purchasing a £180,000 property with a mortgage of £171,000 and putting down a £9,000 deposit would pay £998.65 per month on a 25-year repayment basis, which is cheaper than renting an equivalent property in the capital.

Under NewBuy, the builder pays 3.5 per cent of the sale price into a special account held by the lender for seven years. The Government guarantees another 5.5 per cent but this money is called upon only in the event of a property crash or if there is a loss arising from repossession.

“People can buy with a deposit as small as five per cent without worrying that a dip in the market will push them into negative equity,” says Samantha Baden, an analyst for FindaProperty website. Barratt is the first builder out of the blocks, offering apartments at more than a dozen developments across London. It has set up a helpline — 0844 815 6179 — while a network of independent mortgage advisers aims to give applicants a rapid decision.

“The key thing is that buyers will no longer need huge deposits of up to 20 per cent. This is a game-changer for creditworthy buyers,” says Gary Patrick, Barratt’s regional sales director for east London.

The minimum five per cent deposit required to buy a one-bedroom flat ranges from £9,475 at Delta, in Deptford, where prices start at £189,500, to £14,400 at Osiers, Wandsworth, where apartments cost from £288,000. Homes in commuter towns outside the capital — such as Milton Keynes — can be bought with a deposit of £5,250.

Other leading housebuilders, including Bovis, Bellway, Linden, Persimmon, Redrow and Taylor Wimpey, are inviting potential buyers to register on their websites. Berkeley Homes says it will include NewBuy homes at developments in Rotherhithe, Blackheath and Stanmore.

Clearly, buyers are advised to cherry-pick properties and locations rather than rush in purely because of the deposit incentive. Some industry experts fear builders will market homes at “peripheral sites” that have failed to sell during the housing downturn.

In a fix over mortgages

Jon Neale, residential research director at Jones Lang LaSalle, also questioned the competitiveness of the mortgage deals emerging. “Mortgage rates of circa five per cent are higher than the wider market average. According to the Bank of England, the typical two-year fixed-rate mortgage at 75 per cent loan to value is 3.24 per cent.”

NewBuy applies only to brand-new apartments and houses, including flats in converted commercial buildings. Second-hand properties are excluded. However, the scheme is not restricted to first-time buyers. Existing property owners qualify, too.

There is nothing to stop NewBuy purchasers putting down a deposit of more than five per cent if they have the funds, or there is a contribution from the bank of mum and dad. A larger deposit increases equity in the property and may result in a better mortgage deal.

Some developers are continuing to offer their own deposit incentive schemes in tandem with NewBuy. For example, Linden’s Step Up deal is open to buyers with a deposit of five to 15 per cent and offers a mortgage fixed until April 2015.