The Council of Mortgage Lenders is urging to Government to extend NewBuy beyond 2015 when the Budget is announced later this month.
The scheme, which launched in March 2012, got off to a slow start but transaction numbers picked up towards the end of 2012. At the end of last year, there had been 1,500 completed purchases, although in Q4 900 homes were bought through the scheme, more than twice as many as in the previous quarter.
NewBuy has the capacity to help 100,000 borrowers get onto the housing ladder but this is not seen as a target, just the scheme’s overall capacity. Commentators have suggested the scheme will have helped around 25,000 to 30,000 borrowers purchase a home when the scheme comes to an end.
However, the trade body is “concerned” the scheme will not reach its full potential unless it is extended beyond 2015.
In its fortnightly newsletter, News & Views, the CML says: “Given that NewBuy and similar initiatives in other countries take time to gain momentum, we are concerned that closure of the scheme in 2015 could come just as it is beginning to yield the strongest results.”
The table below shows the number of transactions completed through NewBuy since its launch:
It is also urging the Chancellor to give more favourable tax treatment to buyers under the scheme by abolishing stamp duty on NewBuy transactions.
Stamp duty is currently levied on properties over £125,000 but borrowers are allowed to purchase properties worth up to £500,000 through NewBuy, meaning many people will have to stamp duty as they will pass the threshold.
The CML argues borrowers who use the scheme have small deposits and so should not be penalised for buying properties that break the threshold.
The trade body says: “The Chancellor should also look at a favourable tax treatment for buyers under the scheme. Given that NewBuy allows access to home-ownership for borrowers with a deposit of only 5 per cent, we believe the government should look at the anomaly that means that many of these buyers are taxed on their purchase because it is captured by stamp duty.
“For those buying properties for more than £250,000, stamp duty adds a further 3 per cent to their costs.There is a real anomaly and potential impediment here, in a scheme which is trying to limit up-front costs for creditworthy borrowers with limited savings.”
The CML has also reiterated its call for the Government to address the “slab” structure of stamp duty, replacing it with a more “progressive system” in which higher rates are only levied on the amount above each threshold.
Presently, stamp duty is not levied on purchases up to £125,000. However, for purchases between £125,001 and £250,000 borrowers are charged 1 per cent of the property price; between £250,001 and £500,000 the levy is 3 per cent; it is 4 per cent between £500,001 and £1m; 5 per cent between £1m and £2m; and 7 per cent on purchases over £2m.