Three major mortgage lenders have launched new products as part of the Government-backed scheme designed to boost demand for newly built homes.
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The NewBuy scheme is forecast to help as many as 100,000 people locked out of the property market by heralding the return of 5% deposits rather than the 20% typically demanded by lenders since the credit crunch.
The Government will stump up 5.5% of the value of a mortgage on a home worth up to £500,000 in England, while the housebuilder will put up 3.5% to help guarantee mortgage lenders against any losses and stimulate a wave of fresh lending.
Barclays, Nationwide Building Society and NatWest Home Loans said they are ready to start lending under the scheme, while Santander aims to make products available by the middle of the year and Halifax is expected to follow suit.
The support of lenders is vital if the scheme is to succeed and there had been fears they would fail to put their weight behind it. It is hoped the initiative will not only help buyers struggling to raise the deposit required for a new home but will also create new work – and jobs – in the construction industry.
Council of Mortgage Lenders director general Paul Smee said: “NewBuy will contribute not just to housing supply, but also to economic growth in the UK. And it will reopen access to many creditworthy borrowers to buying a new build property.”
Barclays said it will provide mortgages with a rate of 4.99% on up to 95% of a property’s value, meaning a typical first-time buyer purchasing a new home with the participating builder at £180,000 and requiring a mortgage of £171,000 would pay £998.65 per month on a 25 year repayment basis.
NatWest, which is part of taxpayer-backed Royal Bank of Scotland, is offering loans with interest rates from 4.29% of up to 95% of the value of a property and Nationwide is offering loans from 5.69% on up to 95% of the value of the property. It said the rates are the equivalent to loans it offers customers buying a second-hand property with a 90% loan-to-value mortgage.
John Cridland, director general of business body CBI, said: “Unfreezing the housing market will be a major game-changer in the drive for economic growth, which is why we called on the Government to support home buyers by making it possible for them to take out low-deposit mortgages.”
Ray Boulger of independent mortgage adviser John Charcol said the deals, particularly those offered by NatWest, represent relatively good value to people struggling to raise a deposit. The scheme will particularly benefit those who want to buy newly-built flats, because lenders have been asking for larger deposits in recent years because they are seen as more risky, he added.
The Press Association