Why NewBuy might be a NoBuy
Friday 23rd March 2012
We recently saw the announcement of the government’s NewBuy scheme, which aims to encourage an increase in lending, stimulate the housing market and help first-time buyers onto the property ladder.
NewBuy allows buyers to access up to 95% loan-to-value mortgages – something many thought were a thing of the past – on new build homes under £500,000 from participating lenders and housebuilders. In order to reduce the risk to lenders, the government and housebuilders guarantee up to 9% of the mortgage value.
On the face of it, it looks a promising scheme where creditworthy buyers (both first-timers and those trading up) will have an opportunity to buy homes with some of the smallest deposit levels seen since the credit crunch.
While the scheme may increase the number of new builds sold, ultimately buyers lose out: new builds are notorious for inflated market values, while ‘second-hand’ properties offer better choice in terms of location, quality and the ability to negotiate on price. Consumers also face the additional risk of having a home that may be much harder to sell than the traditional period terrace.
In addition, high LTV mortgages leave very little wiggle room for consumers should house prices fall and mortgage rates rise. Falls of 3-5% are expected this year barring London and the M4 corridor, and we are already seeing examples of rates increasing with both Halifax and RBS announcing a rise to 4%.
Those working with a 10% deposit in particular should hold off making a snap decision as there are a number of lenders offering mortgages with 90% LTV. Anyone purchasing a property should be taking a mid- to long-term view to lower the risk of negative equity, and if you are being judged on the same affordability criteria it makes sense to choose from the open market
Buyers should not be rushed into making a snap decision just ‘because they can’. Instead, you should take advice from an independent mortgage broker on the mortgages available to you and carry out local market research with the help of a good estate agent. This will ensure you not only get the best rate but make it more likely you will find a home you truly want or a good investment property.
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Editorial Contact Details - Conor Shilling