What Is The Newbuy Housing Scheme?
The NewBuy housing scheme works by offering mortgages needing a smaller deposit, between 5–10% on certain new homes and new homes sites.
The scheme co-ordinates among lenders who include Nationwide, Barclays, Natwest, Halifax and Santander. The builders are contributing to a fund with every plot sold under the scheme, which will be used to protect the banks in the event of the borrower defaulting on the loan.
After that fund is exhausted, which we are assured is very unlikely, then the tax payer will be guaranteeing these loans. A shortage of new homes is one of the problems in the housing market and the hope is that this will generate an additional 100,000 new homes through increasing demand for new-build property.
This may of course be true but the real question for me is whether or not this will simply shift demand away from the re-sale market? New homes generally carry a premium compared to their re-sale equivalent, taking account of the fact that everything is brand new and presumably not needing much maintenance over the first five years or so.
This scheme will attract two different types of buyers:
FIRST-TIME BUYERS – this is bad news for the re-sale housing market because if this scheme did not exist they would probably borrow from mum and dad where they can and purchase a more competitively priced property.
Because the chain starts and ends with this transaction, there is no benefit to the wider market. What the Yorkshire housing market does not need is fewer first-time buyers. Homeowners who bought their property with a small deposit from 2004 onwards. This could be the real benefit to getting the market moving.
If you purchased a property in 2004 or 2005 with a 95% mortgage then the likelihood is that you don’t have much more than 10%-15% equity in your home. If this is the case, and your family circumstances have changed and you need more space, then buying a larger new-build may now be possible.
Moving up market, your 15% of your £200,000 only equates to 10% of a £300,000 home, which could qualify under the scheme. Without this you may not be able to access the appropriate mortgage.