Home loan scheme hailed as ‘shot in the arm’ for sector

Lenders yesterday began selling mortgages backed by the NewBuy mortgage indemnity scheme, offering loans for up to 95 per cent of the value of a home.

The scheme aims to reduce the deposit burden for cash-strapped buyers to just five per cent. It is targeted specifically at newly-built homes in a bid to boost construction rates.

“It’s great news and what the industry has lobbied for,” said Mike Farley, chief executive of York-based housebuilder Persimmon.

“It’s one of the things that will make a huge difference for the market. The 95 per cent mortgages are what’s missing in the marketplace.”

Under the scheme, participating housebuilders pay 3.5 per cent of the value of a home into an indemnity pot held by the lending bank.

In the event of a repossession, the lender will be able to cover losses through the housebuilders’ fund as well as the buyer’s deposit, before calling on the Government guarantee.

Mr Farley added: “NewBuy is a much-needed shot in the arm for the whole housing sector and will also give a welcome boost to UK growth and employment.”

The Government claims the scheme will allow banks to lend at loan-to-value ratios which would otherwise have been “impossible”. It should also improve liquidity for banks, by providing additional capital.

NewBuy does not just target first-time buyers, but also people looking to move to a new home, many of whom have been unable to release equity as property prices have fallen.

It has no salary cap and is available on homes worth up to £500,000.

Mr Farley said he hopes NewBuy will help Persimmon increase output of private sales by 10 to 15 per cent.

He said: “We get a lot of people coming to our sites in York and Leeds who have the ability to pay for the mortgage but do not have the huge deposit. This scheme should overcome that.”

Ian Ruthven, sales director at Barratt Yorkshire West, added: “We believe it will provide the necessary kickstart to the market which has been starved of mortgage finance in the past five years. There is an awful lot of pent–up demand.

“People have been renting for three or four years and many are a bit fed up that they are paying more in rent than if they had bought.”

Builders can claw back their contribution after seven years if no claim is made.

Lenders including NatWest, Barclays and Nationwide have so far signed up to the scheme.

The Council of Mortgage Lenders said NewBuy will contribute “not just to housing supply, but also to economic growth in the UK”.