Property developer Redrow says the Government’s NewBuy scheme is being undermined because lenders are failing to bring down their rates to reflect the risk profile of the initiative.
The group’s latest financial results, published this week, says while the scheme has been welcomed by the industry, it has not “enjoyed the success it deserves”.
It says: “The take-up so far has been disappointing with just 63 customers choosing to use the scheme, with many more discouraged by the high interest rates charged by most of the participating lenders.”
A Council of Mortgage Lenders spokesman says: “Lending rates need to reflect all the risks that are associated with higher LTV lending and there are some risks that are not covered by this scheme. Two principle risks include the risk of default and the losses that might arise from the default. Losses from default will be covered in most cases but may not necessarily fully covered.The risk of loss itself is not covered and that is something a lender has to take into effect when pricing the products.”
Barclays, Halifax, NatWest, Santander, Aldermore and Nationwide currently offer NewBuy mortgages, providing a 90 per cent to 95 per cent LTV mortgage for buyers.
Aldermore currently offers two and three-year fixed rates at 5.48 per cent. Halifax reduced its NewBuy 95 per cent LTV by 0.10 per cent to 5.89 per cent in July.
Barclays reduced its three-year fixed rate NewBuy mortgage from 5.69 per cent to 5.49 per cent in September. NatWest has a two-year fixed rate product at 4.49 per cent and a five-year deal at 4.79 per cent.
Nationwide has three-year fixed rates starting at 5.49 per cent and five-year fixed rates starting at 5.59 per cent for new borrowers.
Santander reduced its NewBuy mortgage rates by up to 0.7 per cent in August. The lender’s three-year fixed rate was reduced from 5.49 per cent to 4.99 per cent, while its five-year fixed rate was cut from 5.49 per cent to 5.29 per cent and its seven-year fixed rate was reduced from 5.99 per cent to 5.29 per cent.