New Build Indemnity Scheme

More taxpayers cash at risk

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What is a New Build Indemnity Scheme and what is the Government’s intention with it?

The latest talk is about the Government (and/or the Builder) picking up some of the Lender’s risk on a high loan to value mortgage on a new build property. Talk is around 95% mortgages with a 5% deposit.

The Government is saying this will get Builders building, Lenders lending, and First Time Home Buyer’s buying – but will it?

The theory is that the Lender will be protected by the taxpayer (where have we heard that one before?), and if a buyer defaults and is repossessed, there will be cash made available to soak up the Lender’s potential losses.

The net result could be, Lender maintains profit, Builder maintains profit, Buyer is homeless, Taxpayer is potless, and we have another empty property that no-one wants to buy.

We are not convinced that the slow rate of first time buyer purchases in the current market is primarily due to either lack of supply, or lack of lending. Property prices are still well above what is affordable for most first time home buyers – 95% mortgages won’t change that. In fact the higher mortgage rate associated with lower deposit mortgages may make the properties less ‘affordable’.

There is a general lack of confidence in the market about where prices are going and a first time home buyer buying a property today with a small deposit will understandably be concerned that they could be in a negative equity situation quite swiftly. It is all too easy for a Builder to price a property at 5% to 10% more than the market value, and removing the Lender’s risk means that they may not protect the buyer by taking their usual conservative approach when valuing a new build.

These attempts to manipulate the market using tax payer funds may well end in tears.

If you are a First Time Home Buyer it is more prudent to wait until you have a minimum least a 10% deposit. If you cannot raise that size of deposit there are already a number of more sensible schemes that can assist you such as shared ownership or shared equity.

If you can only raise a 5% per cent deposit, then perhaps a purchase is not a sensible option for you?

View our golden tips for first time home buyers video

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