Newbuy Guarantee Scheme

Newbuy Guarantee Scheme

Contact A Mortgage NowThe Government’s Newbuy Guarantee Scheme was launched today.

We picked this up in our blog on 2nd February and our view has not really changed. (at that point the label seemed to be New Build Indemnity Scheme)

If you want to find out mortgage about the scheme visit our Newbuy Guarantee Scheme page

Who does the Newbuy Guarantee Scheme benefit

The Building Worker
Yes, this should mean more work for building workers

The Developer
Yes, they set the prices and will make sure they are not out of pocket. They also have the benefit of a large amount of the risk being picked up by…

The Taxpayer
Whilst the Government will be enjoying the headlines, once again they are putting up the taxpayer cash to make the world sweeter for…

The Lender
The Lender looks to us as winning all round. The Taxpayer and Developer are picking up the risk and the Lender gets to charge 90%+ rates for what is a 80% mortgage in all but risk profile.

The Buyer
You could be a winner if your cash situation means that you cannot finance a 10% or 20% deposit yourself. For first time home buyers this could be a good opportunity to get on the housing ladder.

If you can raise a sensible deposit from your own resources we suggest you look at a standard purchase and reduce the risk of paying too much for your property and your mortgage.

Please note that the Government web page on the scheme says…

‘The existence of the indemnity does not provide any additional protection for the borrower nor protection from repossession. It does not cover the borrower against negative equity or a shortfall between the sale price and the outstanding debt.’
‘In the unfortunate event of a home being repossessed, the borrower will still be responsible for repaying any shortfall between the sale price of the property and the outstanding mortgage debt.’

The Council of Mortgage Lenders say…

Buying a property with a mortgage under the NewBuy scheme is likely to be more suitable for people who expect to stay in the property for a number of years rather than those who plan to move soon.

If you take out a mortgage on a newly-built property that represents a high percentage of the value of the property – between 90% to 95% in this case – there are some things you should consider. Some new-build properties include an extra premium on the sale price that can reduce as soon as someone moves into the property. This potential reduction in the value of the property is an important factor you should consider when buying a new home using a higher LTV loan. If house prices fall, you may not have enough money from selling the property to repay the mortgage.

If the amount you owe under your mortgage is greater than the value of your home, this is called ‘negative equity’ and could make it difficult to move or remortgage unless you can meet the shortfall from savings or other sources. However, this is a risk of high loan-to-value borrowing (where you borrow a large percentage of the value of the property), not of the NewBuy scheme itself.

You may be able to borrow more (in other words, get a further advance) if your lender agrees, but at this point the scheme would not apply to you, and that may mean the lender will not be prepared to lend.

You should get financial advice if you are in any doubt about whether a low-deposit mortgage is right for your circumstances.

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