Why the NewBuy scheme isn't working

Two months after launch, how are lenders behaving and is anyone actually using this Government-backed scheme?

When the NewBuy initiative was unveiled in March, NatWest, Nationwide and Barclays were the only three confirmed lenders prepared to offer mortgages at competitive rates to those with a small deposit.

Two months on, how has the scheme fared for buyers, builders and lenders? And how have the rates on offer changed?

Opening doors

The NewBuy scheme is the latest attempt from the Government to re-energise the housing market.

The initiative has been designed to perform two main functions: help people up the property ladder (especially first-time buyers) and to kick-start the building trade.

NewBuy gives homebuyers access to a mortgage even if they can only manage to save a 5%-10% deposit. This means the amount borrowed is larger (90%-95% LTV) posing a greater risk to the banks that are lending the money.

The banks that have participated in the scheme so far have been convinced to lend on this riskier loan-to-value ratio because of a special indemnity guarantee, funded jointly by the builders and Government of up to 9%, which will cover any losses to the bank should the buyer fall into financial problems or in the event of a major property crash.

The only qualifying criteria for this programme is that you have to be buying a property in England from one of the developers taking part in the scheme, it must be your primary home not an investment (i.e. not buy to let), you have to have full ownership (no shared equity or shared ownership) and the property can cost no more than £500,000.

NewBuy mortgages

So far Nationwide, NatWest, Barclays and (since April) Halifax have NewBuy mortgages on offer. Most of these are not readily available to view online as they are only available in branch or through an intermediary so we’ve gathered up all the deals available at the moment to see how they stack up compared to the launch rates.

Price hikes

It’s a shame that only two months on, lenders have quietly hiked their prices compared to what was on offer back in March when the scheme first launched.

Barclays has scrapped its 5% two-year and 5.89% four-year fixed rates for one more expensive option: a 6.09% three-year fixed rate. A spokesperson for Barclays told us the changes are a result of other lenders re-pricing.

NatWest has put its rates up by 0.5%. So instead of 4.29% and 4.99% the lender now offers the higher rates of 4.79% and 5.49% for a two- or five-year fixed mortgage respectively.

Nationwide has also raised the price of its five-year deals by 0.1% and only just reversed the decison to raise the price of their three-year deals by 0.2%; these remain competitive at 5.79% and 6.09% but still represent a 0.1% rise on the original launch price.

We will have to wait and see how Halifax behaves with its offers, but if the other three are anything to go by, we can expect to see a shift upwards once the fanfare of joining the NewBuy mortgage gang is over.

Is NewBuy a success?

It may be a bit early to be talking about the success of such a new scheme. No figures are available about the level of interest or the amount of people taking up the scheme (at least from anyone we contacted), but the price hikes beg the question of whether lenders are jeopardising the programme before it has even got going.

Steve Roche, Persimmon Homes’ group communications director (one of the developers on the NewBuy scheme) told us: “Initial interest in the scheme through our website was extremely positive and we were pleased that lenders were offering extremely competitive rates. However, we are concerned that as rates have risen to near 6% for the scheme, interest could be limited in the future. We remain supportive of the scheme and will watch with interest to see how lenders respond.”

Builders are starting to distrust the support of lenders and the lenders are doing as they please, but what about the buyers? Has anyone actually taken the plunge into this brave new world? Well, we know of at least one person who has.

Heena Rai moved into a new Bovis Home in Peterborough last month, becoming the first person in the UK to legally complete buying a house using the NewBuy mortgage scheme.  

The 27-year-old was keen to try the deal as she was tired of renting and wanted to own a property. Her experience of the deal is positive: pointing out how quick she was able to complete and reports that her mortgage is quite manageable.

So that’s one happy customer – but what about the thousands that this deal was meant to help?

Steve Turner, head of communications at the Home Builders Federation, who had a hand in designing the scheme, told us that they expect tens of thousands of sales hot off the heels of the first one last week. He warns that the programme is still in the very early stages of what will be a three- or four-year initiative and once more lenders come on board they anticipate more competitive rates.

More on mortgages:

The top 10 fixed rate mortgages

The hidden cost of buying a new build

Halifax unveils NewBuy 95% LTV mortgages

How to stand the best chance of getting a mortgage

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