This week has seen the launch of the government's latest attempt to get beleaguered first time buyers buying again, or rather at this juncture we should say to turn some of the young long-term renters back into first time buyers. The New Buy Guarantee Scheme is a mortgage guarantee scheme where house builders underwrite 3.5% and the government a further 8.5%, and the banks then lend 95% of the purchase value.
The scheme only applies to new build properties, with the aim of stimulating the construction industry and adding to housing supply as well as bringing back first time buyers.
According to the government the banks are all on board, but in the press there is talk of serious reservations and interest rates above 5%. The house builders want sub-5% rates in order to lure first time buyers, many of whom have become accustomed to renting.
Unsurprisingly lenders under the state-owned RBS banner have been first to put out details of new 95% mortgages under the New Buy Scheme. Deals from Barclays, Nationwide Building Society and NatWest ranged from a 4.29 per cent two-year fixed rate offered by NatWest to a five-year fixed-rate at 5.99 per cent offered by Nationwide.
Grant Shapps, housing minister, told BBC Breakfast: "I think it is the best deal possible for homebuyers. The average age of the first-time buyer, in particular, has gone up dramatically – it is nearly 37."
"The problem is not that people cannot afford the mortgages, rates have been low for a long time. They can afford the monthly repayments, they can’t get the deposit together because unlike in the past, you can't get 95 per cent mortgages which operated fine for decades in this country."
Meanwhile major house builder Barratt Developments has reported "enormous" customer interest for the new scheme.
However, not everyone is ready to toast the housing market's saviour just yet. Alastair Stewart, a long-time industry analyst at Collins Stewart has raised fears that buyers under the scheme could be walking into a negative-equity trap.
"From a house buyer's point of view there is a very real chance of instant negative equity, since - if this is the only real source of 95pc mortgages and it is only available on new homes, where volumes are near historic lows - there will be short-term upwards pressure on prices, which like buying a new car, will evaporate when the buyers put their keys in the lock," he said.
- Tuesday 13 March 2012