Concern that builders could inflate their newbuild prices
Share
Mortgage experts are concerned that housebuilders could artificially inflate the price of newbuild properties to mitigate any potential losses from the Government’s new mortgage indemnity scheme.
The scheme will see builders deposit 3.5 per cent of a property’s sale price in an indemnity fund for seven years, after which they will get their money back minus any losses. The Government will underwrite 5 per cent of the purchase and the borrower will put up a 5 per cent deposit.
So far, Barclays, HSBC, Lloyds Banking Group, Nationwide, Royal Bank of Scotland, Santander and Yorkshire and Clydesdale Banks have agreed in principle to take part in the scheme. Over 25 developers including Barratt, Persimmon and Taylor Wimpey have also signed up.
MAC Consulting chief executive Mark Chilton (pictured) says: “Housebuilders should make a profit and no one is denying that but the mere availability of the indemnity could lead builders to raise house prices.
“Under this scheme, properties should be sold on a cost-plus basis, so every developer would agree a sensible profit margin for each home.”
Chadney Bulgin mortgage partner Jonathan Clark says: “There is a concern that new house prices are already over-inflated and I think this will just add to the problem. Builders might shift the cost of this scheme into the price of new homes because they could potentially lose their money.”
If you enjoyed this article, sign up here to receive daily email updates from Money Marketing and Follow @_moneymarketing
Readers' comments (1)
Surveyor | 25 Nov 2011 3:44 pm
Is anyone sufficiently naive to believe the builders would do anything else?
It is always the same with most headline grabbing schemes from politicians the scheme won't actually benefit anyone other than the builders or the banks. It is a dead sale and doesn't free up a previous first time buyer to move elsewhere in the property market.
Banks will love it as they probably financed the builder's scheme in the first place and might get some money back!
Unsuitable or offensive? Report this comment