UK Moves on ‘NewBuy Guarantee’ Program

The United Kingdom (UK) has announced the beginning of a “NewBuy Guarantee” mortgage program that will allow qualified prospective homebuyers to purchase new homes with a lower down …

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The United Kingdom (UK) has announced the beginning of a “NewBuy Guarantee” mortgage program that will allow qualified prospective homebuyers to purchase new homes with a lower down payment than was previously required. UK banks currently ask that purchasers, specifically first-time homebuyers, put down 20% of the purchase price on a mortgage, but the new program will bring that down to 5%. The program is expected to also boost demand for new-home construction and has received wide support from the government and the housing industry. For more on this continue reading the following article from Property Wire.

Details of a new scheme that the UK government claims will unlock the aspirations of a new generation of home buyers and get Britain building thousands of new homes, were unveiled today (Monday 12 March) by the Prime Minister David Cameron and Housing Minister Grant Shapps.

Shapps declared the NewBuy Guarantee open for business and said it is a scheme that will enable an estimated 100,000 prospective and existing homeowners to buy their dream home with much smaller deposits than currently required.

The increased demand for new homes will also give a boost to house builders and the economy, and see thousands of workers returning to building sites across the country.

From today three leading high street lenders and seven of the country’s biggest building firms will begin to offer mortgages on newly built properties to people with just a 5% deposit, a financial product not available anywhere else in the market. Other leading names, including smaller house builders, are expected to follow their lead in the coming weeks and months.

Today’s deals will mean that instead of a typical buyer requiring a £40,000 deposit for £200,000 property, they will now only need £10,000. The government and house builders will help provide security for the loan, so if the house is then sold for less than the outstanding mortgage total the lender will be able to recover its loss.

The scheme, which has attracted strong support from many of the country’s biggest house builders and mortgage lenders, will offer help for up to 100,000 buyers who would otherwise be frozen out of the market.

The Council of Mortgage Lenders has created a crystal marked consumer factsheet to help home buyers decide whether the NewBuy scheme can be of value to them. The leaflet will support lenders, including Barclays, Nationwide Building Society and NatWest Home Loans who have announced that they have successfully managed to design mortgages and agree relationships with builders enabling them to offer mortgages of up to 95% under the scheme.

‘We look forward to more lenders, including Halifax and Santander who have announced plans to do so, joining the scheme over the coming months. The factsheet is freely available on the CML website and can also be used by lenders in their own consumer information.

The leaflet tells customers who qualifies under the scheme, and how it works. It also gives helpful guidance on the sort of customer who is likely to be able to borrow as a result of its introduction,’ said CML director general Paul Smee.

The CML believes that NewBuy has the potential to increase the supply of new housing as builders will have more confidence that mortgages will be available to finance their sale. This will increase employment in the construction sector, enable lenders to lend a higher proportion of the purchase price without the level of risk that would usually arise. As a result, some large lenders will not have to hold such high levels of capital as would normally be required on 90 to 95% lending.

It will also enable consumers who could afford to service a mortgage, but cannot fund a high deposit, to have a wider choice of property and options. While lenders will assess affordability as carefully as usual, those who are good credit risks should find that the scheme can support their aspirations for home ownership.

‘As with all high loan to-value loans, borrowers need to understand the implications of having a low level of equity, so the CML guide should make a helpful contribution to consumer understanding,’ explained Smee.

‘NewBuy will contribute not just to housing supply, but also to economic growth in the UK. And it will re-open access to many creditworthy borrowers to buying a new build property,’ he added.

Samantha Baden, property analyst at FindaProperty, said that guarantor element of the scheme means lenders will be able to provide higher loan to value lending with less risk. ‘This is welcome news for those who meet lending criteria but haven’t been able to scrape together a large enough deposit, one of the main reasons people are locked out of the property market,’ she explained.

‘The guarantees offered under the scheme mean that mortgage providers will be able to lend to people with deposits as small as 5%, without worrying that a dip in the market could push thousands into negative equity. The government suggests around 100,000 buyers could benefit from NewBuy, ten times the amount targeted by FirstBuy, which is good news for struggling home buyers,’ she added.

This article was republished with permission from Property Wire.

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