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News - 15 March 2012

The NewBuy house purchase scheme – good news for Builders and First Time Buyers.

In an effort to give struggling first-time buyers and the housebuilding industry a lift, the Government has launched a scheme that lets people buy new homes with just a 5% deposit.

Under the NewBuy scheme the person buying the home gains access to mortgages worth 90% to 95% of the property’s value. While this sort of mortgage was common five years ago, since then they’ve more or less disappeared from the market, meaning those looking for a home of their own have had to save a lot more to secure the best mortgage rates – in some cases as much as 35% of the value of the property.

This has led to people renting for longer at a time when the cost of living and rents are rising while interest rates on savings are very low. The NewBuy scheme helps break that vicious circle.

What are the conditions?

  • You must be buying a newly built property in England, made by one of the builders that has signed up. You then need to ensure you’re borrowing from one of the lenders that has signed up.
  • The home cannot cost more than £500,000, and must be bought as a standard purchase – rather than a shared equity or shared ownership purchase – and bought to live in rather than as a holiday home or buy-to-let investment.
  • You need to either be a British citizen or have indefinite leave to remain in the UK.

Those who have signed up are: Barratt, Bellway, Bovis, Linden Homes, Persimmon, Redrow and Taylor Wimpey for the builders and for the mortgage suppliers, Nationwide, Barclays and NatWest have signed up – while Santander and Halifax have said they will join it in the next few months.

The rates are definitely attractive. The Government’s guarantees mean that lenders can offer lower costs than would otherwise be the case with mortgages this large. But nothing is guaranteed, lenders will still assess you in the same way they would for any other mortgage application.

House builders put 3.5% of the sale price into a fund for each property sold through the scheme, while the Government provides additional security in the form of a 5.5% guarantee.

That means that if the property is repossessed, the lender can recover any losses initially through the house builder’s fund, then call on the Government guarantee to an agreed level.

The idea is that this will allow lenders to offer cheaper loans at a higher percentage of a property’s value than normal.

Tonmoy Kumar, Manager of the Accounts Department of ABDS says:

“There is also a benefit to house builders – who should see demand for new homes rise in providing a kick-start for developers both large and small who will be able to build the homes and create the jobs that the country desperately needs."

If you need any help and advice on this or any other aspect of Property and Letting contact Lavinia Newman, Stuart Coleman or Tonmoy Kumar to discuss how ABDS can help.

ABDS Chartered Certified Accountants of Southampton.
Tel: 023 8083 6900  E-mail: abds@netaccountants.net

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