NewBuy mortgage scheme launched

| March 12, 2012
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The government launched its NewBuy scheme today, to help people afford a mortgage on a new property.

The mortgage indemnity scheme will help people borrow up to 95 per cent of the value of new homes, for example on a newly built £200,000 property they would have to provide a £10,000 deposit.

Since the credit crunch many potential house purchasers have struggled to afford a mortgage, with lenders demanding minimum deposits of between 5 to 10 per cent, while the best deals have gone to borrowers with deposits as high as 40 per cent of the value of the property.

The average age of first-time buyers has risen substantially since the credit crunch, and many people have turned to the rental market as they are unable to afford a deposit on a mortgage.

The NewBuy scheme is designed to give lenders the confidence to offer mortgages requiring deposits of just 5 per cent.

House builders who have chosen to participate in the scheme, will pay 3.5 per cent of a property’s sale price into a special account held by the lending bank for seven years.

The government will pay-in an additional 5.5 per cent of the sale price, providing a further guarantee, which can be accessed in the event of a major crash in the property market.

Commenting on the NewBuy scheme, Housing Minister Grant Shapps said: ‘I’m not prepared to stand by, and nor is the government, to watch an entire generation of people be locked out of the housing market when they can afford proper mortgages’.

The scheme is expected to boost the property market and lead to an extra 100,000 properties being built, creating around 500,000 jobs.

However, Labour shadow housing minister, Jack Dromey, today questioned why the number of mortgage lenders and house builders participating in the scheme has fallen from when it was first announced.

Just three mortgage lenders are now involved, compared with an expected seven, and the number of participating builders has dropped from 25 to seven,

Simon Walker, Director General of the Institute of Directors, said that the best way to help house-builders and people wanting to buy their own home is to introduce planning reforms to allow more houses to be built.

“Real planning reform would kick-start the construction industry and make prices more affordable for young couples looking to own their first home,” he said.

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