Mortgage scheme offers buyers help up the property ladder

 

Housing Minister Grant Shapps insists the scheme "will really help people get on the housing ladder"

People in England are being offered help to climb onto or up the housing ladder as the government's mortgage indemnity scheme launches.

Building firms and taxpayers will be co-guarantors on new homes bought by existing or first-time buyers.

The government hopes the NewBuy scheme - supported by Barclays, NatWest and Nationwide - will help people to borrow up to 95% of the value of new homes.

Critics argue the scheme is just a ruse to help the construction industry.

Under NewBuy, the builder pays 3.5% of the sale price into a special account held by the lending bank for seven years.

Taxpayers will provide additional guarantees of 5.5% but that money will be called upon only in the event of a major property crash.

The scheme is being unveiled on the same day Prime Minister David Cameron confirmed the extension of the right-to-buy discount to up to £75,000 for social housing tenants.

'Scheme re-boot'

Under that scheme, those who have had five years in a council house could receive a 35% discount, with an extra 1% for each added year up to a maximum of £75,000.

Tenants in flats will get 50% off after five years, with 2% added yearly. The government says the cash raised from the sales will be put towards new "affordable homes for rent".

Mr Cameron said of both schemes: "Strong families and stable communities are built from good homes. That's why I want us to build more homes and I want more people to have the chance to own their own home."

Start Quote

The scheme will also provide a vital kick-start for house builders large and small”

End Quote Stewart Baseley Home Builders' Federation

He said: "We're rebooting the right-to-buy scheme to increase discounts for two million tenants in social housing in England. And we're delivering on our promise to offer affordable mortgages to buyers who might otherwise not be able to raise the money to buy a newly built home."

He added: "It's no good hoping people will climb the property ladder if the bottom rung is missing."

NewBuy is backed by the Home Builders' Federation (HBF) and the Council of Mortgage Lenders and seven construction firms - Barratt, Bellway, Bovis, Linden Homes. Persimmon, Redrow and Taylor Wimpey.

The scheme is available on flats and houses up to a maximum value of £500,000 in England only.

The Department of Communities and Local Government says the NewBuy scheme will enable banks or building societies to lend up to 95% of the sale price - meaning buyers might only have to provide a £10,000 deposit on a newly built £200,000 home.

'Questions to answer'

Housing Minister Grant Shapps said the average age of first-time buyers had risen dramatically as people could not afford deposits.

"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," he said.

Stewart Baseley, executive chairman of the HBF, said: "NewBuy will help thousands of people to meet their aspirations to buy a new home, freeing up the housing market and helping first-time buyers and those unable to take the next step on the ladder.

Start Quote

This strategy also does almost nothing to help the growing number of families living in insecure private rented housing with hardly any protection from rogue landlords or unexpected rises in rent”

End Quote Campbell Robb Shelter chief executive

"The scheme will also provide a vital kick-start for house builders large and small who will be able to build the homes and create the jobs that the country desperately needs."

The construction industry hopes the plan will lead to an extra 100,000 properties being built, which it says would create 500,000 jobs.

For Labour, shadow housing minister Jack Dromey said: "There are questions to answer about this scheme. Why has the number of major lenders participating in the scheme fallen from seven to three and the number of builders from 25 to seven compared with when this scheme was originally announced?

"Reports have also suggested that few, if any, mortgage products will be available straight away and that the interest rates might not be attractive to would-be buyers.

"It would be absolutely wrong for the government to raise the expectations of families and young couples only for them to find little choice and that they're unaffordable."

Property expert Henry Pryor: "Anything that artificially props up house prices stores up trouble for tomorrow".

Other criticisms levelled at NewBuy are that it is just a ruse to help the construction industry and that the government is artificially meddling in the housing market and postponing a future fall in house prices.

And Shelter's chief executive Campbell Robb said: "This strategy also does almost nothing to help the growing number of families living in insecure private rented housing with hardly any protection from rogue landlords or unexpected rises in rent."

Earlier this month the HBF said the number of new homes getting planning permission in England had fallen to a five-year low.

A Council of Mortgage Lenders spokesman said: "There is lender support and interest in the scheme. This is part of a wider approach to stimulating demand in the economy and it is part of a growth package and a series of measures."

One of Britain's biggest housebuilders, Barratt Homes, said 20,000 people had already registered for more information about the scheme.

 

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  • rate this
    +1

    Comment number 212.

    We work to pay for scroungers and we can't afford to buy a house! Maybe we will give up work and get a free Council House!
    Council House Tennants will buy cheaper than market value, sell a week later at actual market value and maybe make £50k profit which would take anyone else a few years to save! NOT A GOOD IDEA! Please just make 95% mortgages available to people who work and pay our way.

  • rate this
    +4

    Comment number 211.

    The government appears to be using this scheme to boost the building trade and employment, but not considering the first time buyers buying over valued new builds that could leave them in a negative equity position as soon as they move in. and they could be trapped in the property for same time waiting for prices to rise before they can sell and move up the ladder.

  • rate this
    +6

    Comment number 210.

    I bet there are plenty of overcomfortable ex property speculators reading this article with glee?

    Speculating on property & land was much easier way of getting money than having a proper job, doing proper work, & there were hordes of these scroungers busy at it under Thatcher and Blair

    That is where all the money has gone in case you were wondering?

    That's capitalism folks? Good isn't it?

  • rate this
    +2

    Comment number 209.

    "meaning someone would only pay 10 thousand down on a 200 k mortgage". Only 10 grand. Reminds me of when Camerson said lets face it we all have mortgages. Where does he expect people to even find ten thousand when his policies leave huge numbers of young and other people with no chance of work let alone a mortgage. Where did Mr Cameron get his first deposit from.I bet it was from Daddy.

  • rate this
    +3

    Comment number 208.

    Don't new houses have a new house premium of between 5 & 10%.
    So the builders putting in just 3.5% would not save the banks if the buyers crash & burn.

  • rate this
    +8

    Comment number 207.

    Near where I used to live, there was one of the better council estates but with an 8 to 10 year waiting list.
    Another estate had a 6 year waiting list.

    Selling off even more homes in Right To Buy is obscene, when there are already too few homes for those on low income.

  • rate this
    -12

    Comment number 206.

    #68 says "Is anyone going to explain why my comment deserves negative votes..you are either cynical to the point where you hate life, or this scheme doesn't benefit YOU..?"
    Don't worry; I'm proud to say my entries on HYS are always voted down by the cynical, negative, leftist mob that dominates here. Just proves you and I are right! PS: just to provoke more minus votes - the scheme is GOOD!

  • rate this
    -1

    Comment number 205.

    188.FauxGeordie

    You're right - how terrible it would be for the taxpayer to put his/her money in property.

    Much better to let the banks invest it in hedge funds and derivatives like they did for the past 20 years.

    Silly me.

  • rate this
    +5

    Comment number 204.

    189 Mark - You are expecting me - a long term private sector home owning taxpayer - to subsidise overpriced housing to be provided by large-scale political donors to the detriment of the economy - and by some miracle of uninformed logic thats because I am a leftie loser who wants it all on a plate.

    You're all in favour of handouts - only to yourself though

  • Comment number 203.

    All this user's posts have been removed.Why?

  • rate this
    -3

    Comment number 202.

    If I understand the article correctly this shouldn't involve any taxpayers cash in normal circumstances. However if it results in more new houses built that provide jobs for building trades etc. who presumably pay taxes and claim less benefits this is almost certainly more than the 5.5% the government risks paying. I do agree however of a danger of distorting the market

  • rate this
    +16

    Comment number 201.

    The economic woes we now find ourselves in were caused by wreckless borrowing/lending practices & a housing boom. There has been no significant house price correction and there needs to be a 20% drop - that is what will help the housing market to move again, not pump priming the excessive debt bubble. It maybe painful, it may leave a lot in negative equity but it simply has to happen

  • rate this
    +3

    Comment number 200.

    Interesting. Quickly dropped down the HYS page out of sight, no editor's picks. Clearly the outrage at the stupidity of the Government's actions is not supported by the high house price, low interest rate loving BBC. News management bias at its best.

  • rate this
    +4

    Comment number 199.

    Blatant attempt by conservatives to funnel money into housing developers. This is political cronyism at it's worst.

    Government have removed the Stamp Duty tax break to £250k, kept IR's unrealistically low to help those already with homes and now this farcical policy. Low rates do not help FTB's, more realistic rates and lower capital prices do.

    They have only made things harder for FTB's!

  • rate this
    -1

    Comment number 198.

    What's that, you don't want your children to be able to afford to raise a family and for your legacy to continue?

    Oh ok then!

  • rate this
    +6

    Comment number 197.

    When the Tories first decided to sell off council houses where did the money go? I recall that local counculs weren't allowed to spend it. Anyone know ?

  • rate this
    +5

    Comment number 196.

    Anyone who argues for people to borrow up to 95% of the value of their houses on mortgage, when MLR is 0.5% and must inevitably rise, is plum crazy.

  • rate this
    +7

    Comment number 195.

    Simply offer all new houses at cost price with a binding contract that they cannot be let.

    Or take all new builds into public ownership (again at cost price) as long term rent controlled homes.

    I'm not sure what problem this mortgage scheme is meant to solve, but it is NOT an issue with housing - that is easy to find effective solutions for.

    "Open your eyes - DON'T believe the lies."

  • rate this
    +6

    Comment number 194.

    Cameron & Shapps stood on podium, said: "Crony Capitalism" must go. How can they now endorse such initiatives as the NewBuy guarantee scheme? Propping up house prices benefits no one (except the lenders). It can easily create negative equity.
    When it collapses, will banks be bailed? What kind of society do we want to live in? One where 2 parents must work to service a mortgage?

  • rate this
    +8

    Comment number 193.

    There’s a pressure cooker of first time buyers who need permanent medicine for the UKs inflated property prices. This scheme is just a pain killer after a decade of government overspending, engineered to inflate property prices instead of the market.

    Even a with 95% mortgage, new buyers can’t afford the burden years of lavishness has left. The only cure is a decade affordable home building.

 

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