The best NewBuy 90% and 95% mortgages

We take a look at the new cheaper mortgage scheme for people with deposits of just 5% to 10%.

The Government has introduced its latest scheme to help shove more people onto an overcrowded housing ladder while keeping property prices up.

The whole thing will likely remind you of the “oshiya”, the Tokyo tube staff who ram rush-hour passengers onto trains designed for half the capacity.

Lots of people faint.

The NewBuy mortgage scheme

The NewBuy mortgage scheme, which is for new houses and flats in England only, is designed to help people with meagre savings get on the ladder. The Government and homebuilders offer guarantees to participating lenders. In the case of the Government, it is guaranteeing them using taxpayers' money.

In return, lenders offer more mortgages up to 95% loan-to-value with better interest rates than you would otherwise expect.

In case you don't know what “95% loan-to-value” means, it means that you get a mortgage for 95% of the property price and pay a deposit for the rest. That means you could buy a £160,000 property with an £8,000 (5%) deposit.

Who can use this scheme?

You can take advantage of this on your own home only, not on holiday properties or for buy-to-let, and only if you're not using other schemes too, such as shared equity or shared ownership.

Not all new-build properties are included. The property developer has to have signed up to the scheme, and the maximum property value for inclusion is £500,000, although lenders can fix lower limits.

I've compared all the NewBuy mortgages I can find. So far, I have seen just eight NewBuy mortgages from three lenders, although more lenders are expected to follow:

NewBuy mortgages ranked by length of deal

*I've rounded up the 99s a little.

The best of the bunch

The best NewBuy mortgage by a considerable margin is the second NatWest mortgage, which is at the very bottom of the above table. At 5%, there is only one NewBuy mortgage cheaper than it, but the NatWest mortgage locks in the interest rate for a decent five years, rather than just two.

A longer deal is exactly what you want when you have a deposit of just 5% to 10%, because there is a high risk of getting into negative equity. Negative equity is when the property price falls below your outstanding mortgage, which makes it difficult for you to remortgage or to sell. That's why you want a longer deal, so that you're not stumped a couple of years down the line.

How much does it cost?

The NatWest mortgage with its £500 fee added to the mortgage would cost around £890 per month if you get a 25-year mortgage on a £160,000 property with an £8,000 deposit. After the five years are up, you would have already paid off about £17,000 of your debt, making a total of £25,000 with the deposit. This will help to keep you out of negative equity.

Historically speaking, these mortgages are cheap. Over the past four decades interest rates have averaged something like 8% for all mortgages, including those with much larger deposits.

I compared mortgages offering 90% loan-to-value with these NewBuy deals. The NatWest five-year fixed rate is comparable to the best 90% deals I saw, even though you're possibly only putting up half the deposit. The cheapest two-year NewBuy deal, which is again from NatWest, is also roughly comparable to the cheapest two-year fixes I found at 90%.

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