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NewBuy flawed

Paul Thomas reports problems are already starting as rates rise on the Government’s much heralded scheme

Brokers feel the Government’s flagship housing programme NewBuy could be jeopardised by the recent rate hikes announced by lenders offering mortgages designed specifically for the scheme.

NewBuy, which is for borrowers wanting to buy newbuild properties, was designed to ease lending at 95 per cent loan-to-value ratios and lower the price of these products compared with standard products.

The Government underwrites up to 5.5 per cent of the loan while builders give 3.5 per cent of the loan to the lender to hold for seven years, after which it is returned, minus any losses. The idea is if the home has to be repossessed, the lender is likely to recover most of its money.

NatWest, Nationwide Building Society and Barclays were the only lenders taking part when the scheme launched in March, although Halifax joined this month and Santander is expected to follow in the summer.

Less than two months after the scheme launched, the three initial lenders have all raised their rates.

NatWest has increased its rate by 0.5 per cent, meaning it now offers a two-year fixed rate at 4.79 per cent and a five-year fix at 5.49 per cent.

Nationwide has increased its three and five-year fixed rate by 0.1 per cent, and now offers a 5.79 per cent three-year fix and 6.09 per cent five-year fix.

Barclays has replaced its 4.99 per cent two-year fixed rate and 5.89 per cent four-year fix with a 6.09 per cent three-year fix.

Brokers are disappointed by the increases. Capital Fortune managing director Rob Killeen says: “It is disappointing that a scheme designed to support a certain group of people, which are most likely to be first-time buyers, might not end up providing the intended support.”

The scheme was, in part, designed to lower the price of 95 per cent mortgages in comparison with open market products but, in reality, NewBuy products are now broadly in line – and even slightly more expensive in some cases – with those offered outside the scheme.

For example, Leeds Building Society is offering a 95 per cent LTV five-year fixed rate at 5.99 per cent for a fee of £999, which is 10 basis points lower than Nationwide’s 6.09 per cent five-year fix.

A spokeswoman says: “The majority of mortgages at higher loan-to-value ratios are aimed at those who can have a guarantor on the loan. There are some deals that borrowers could take advantage of today which do not take into account New-Buy scheme deals.”

The Government hopes to help 100,000 borrowers obtain a loan through the scheme. It is too early to determine the take-up as the first deal only completed towards the end of April but some brokers feel the similarity in the prices of NewBuy and non-NewBuy deals might have an impact.

If a borrower decides to save an extra 5 per cent of the property price rather than purchase through the NewBuy scheme, they could get a lower interest rate and choose from a wider range of products.

Tracker rates at 90 per cent start from 3.84 per cent for a two-year discount deal from HSBC, and fixed rates start at around 4.59 per cent for a two-year product from Yorkshire Building Society.

Lentune Mortgage Consultancy director Stuart Gregory says: “It is questionable whether the demand for the scheme will still be there after these rate increases. I would show my customers what deals they can get on the open market. Customers have to bear in mind they can get a lower rate if they save a slightly bigger deposit and can choose from a bigger range of products.”

Despite brokers warning that take-up could be affected by price increases, the Council of Mortgage Lenders and the Home Builders Federation, which were both involved in the scheme’s creation, are confident borrowers will still find the scheme attractive.

A CML spokeswoman says: “The NewBuy scheme is attracting interest and we have noted the first completions under the scheme are beginning to come through. We anticipate there will be many more now that lender and builder participation is increasing further.”

An HBF spokesman says: “NewBuy is still a positive product, as it does not require people to save a huge deposit, which has made it near impossible for many people to buy in recent years but obviously, in an ideal world, we would want to see rates come down.”

The cost of funding has increased significantly over the past six months, for retail deposits and wholesale funds, with rates rising across the board.
If I Were You chief executive Rob Clifford says: “Lenders have to price properly for risk and restore margin. If consumers need facilities at high loan-to-value ratios, they must be resigned to pay up to around 6 per cent – and they are doing so.”

But John Charcol senior technical manager Ray Boulger believes the scheme is flawed. He says any concessions on the capital requirements for lending at this level, which are negotiated on an individual basis between lenders and the regulator, are not filtering through into lower prices.

He says: “Part of the reason for the similarity in prices between the NewBuy products and other 95 per cent products is that the regulatory capital relief lenders get is not enough to price these products cheaper.”

95% LTV mortgage deals

Two-year fixed Rate LTV Fee
Ipswich BS 5.75% 95 £549
Newcastle BS 5.65% 95 None
Newcastle BS 6.25% 95 None
(NewBuy) NatWest 4.79% 95 £499

Three-year fixed Rate LTV Fee
*Nottingham BS 5.79% 95 None
Clydesdale Bank 5.99% 95 None
*Cambridge B 6.29% 95 £999
(NewBuy) Nationwide 5.79% 95 £999
(NewBuy) Barclays 6.09% 95 £499

Five-Year-Fixed Rate LTV Fee
Cumberland BS 4.08% 95 £199
*Monmouthshire BS 5.49% 95 None
Leeds BS 5.99% 95 £999
(NewBuy) NatWest 5.49% 95 £999
(NewBuy) Nationwide 6.09% 95 £450
*Locality restrictions apply



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