New Build Indemnity Scheme
The New Build Indemnity Scheme is designed to improve conditions for first time buyers in the mortgage lender market by offering additional security and guarantees to the Mortgage Lender without impacting on the client’s position.
How the New Build Indemnity Scheme works
In simple terms, the Developer/Builder will contribute cash funds in the order of 3.5% of the value of the property into a fund designed to protect the Lender’s position in the event of default by the Borrower. The fund will be held for seven years and interest will be payable on it. At the end of this period funds will be returned to the Developer less a portion of any credit losses incurred during the period. Funds will be pooled so that the Lender can draw on them to meet losses on any properties sold by the Developer under the scheme.
The new Build Indemnity Scheme will be available on both flats and houses. There will be no compulsion for the Developer to join the scheme and both Lenders and Developers will decide who they wish to work with.
The scheme is designed for owner occupiers and not investors and will therefore not be available on the buy to let market.
New Build Indemnity Scheme Important points
The fund does not protect you as the Borrower in any way as your own liability will be exactly the same as in any other mortgage.
The party getting the real benefit is the Lender whose losses can be protected at up to 95% of their value by the fund. Although the FSA will expect the Lender not to compromise their standard underwriting requirements, this protection can obviously be expected to affect their decision making as to the benefits of competing in this area of the mortgage market.
You as the Borrower
The New Build Indemnity Scheme can be expected to make funds more accessible for Borrowers on New Build property, with perhaps a little more competition leading to better Mortgage rates.
If you require a mortgage for a New Build property – contact us now.
