NewBuy Part Exchange: selling your home to a builder

Emma Lunn
by Lovemoney Staff Emma Lunn on 22 February 2013  |  Comments 4 comments

Homeowners moving up the property ladder can now trade in their old property via the NewBuy Part Exchange scheme. But will part exchanging get you a good price for your home?

NewBuy Part Exchange: selling your home to a builder

Housing Minister Mark Prisk launched NewBuy Part Exchange last month. Under the scheme builders offering the NewBuy scheme will offer to buy a customer's existing property before selling them a newly-built home.

The ideas is to help free up the housing market, not just for so-called second-steppers, but also for aspiring first-time buyers, as it means more properties are available to buy.

The NewBuy scheme was launched in England in March 2012 and aimed to help first-time buyers to purchase new-build properties. Purchasers buying through the scheme are able to get a 95% loan-to-value (LTV) mortgage, meaning they only need a 5% deposit.

Lenders are willing to lend at such a high LTV because they have the added security of a special indemnity fund.

Part exchange

Part exchange allows homeowners to trade in their home as part payment for their new property. It’s much like part exchange on a used car and has similar advantages.

Firstly, as the builder buys the property from you, it gives you certainty about timescales which you don’t get when selling your home on the open market through an estate agent. You don’t have to worry about chains, gazundering or people dropping out.

Secondly, there are no estate agent fees to pay on part exchange, which can save homeowners thousands of pounds. Assuming an estate agent had a percentage fee of 1.8%, selling a £200,000 home would cost £3,600 plus VAT.

The advantages to the house building industry are clear; part exchange helps them secure buyers for new builds in a slow market. And if the builder can sell on part-exchanged homes at a profit they’ll be quids in.

The downsides

Much like used cars, the potential downside of any part exchange scheme is that you’re likely to get less for your property than you might get on the open market.

The home builder will arrange for at least two independent valuations of your existing home and will make you an offer based on their valuations. Unfortunately, it is likely to be less than the market value of your home. However, if a part exchange deal makes the difference between moving and not moving taking a low offer might not matter too much to some sellers.

Home builders tend to be pretty vague about the percentage of your home’s value you can hope to achieve so it’s a good idea to shop around a few housebuilders to see what they offer. But bear in mind that the housebuilder offering the best deal might not necessarily be selling new builds in an area you want to buy in.

Not all homes will be deemed suitable for home exchange as there will be stipulations about the value and the type of property – after all, homebuilders only want to buy properties they think they can sell on easily enough.

Properties that might be excluded from part exchange include anything unmortgageable or with structural defects. Owners of leasehold flats with less than 80 years left on the lease or studio flats might also run into problems.

There also might be rules about the value of your home compared to the one you intend to buy.

For example, Taylor Wimpey says your existing property should be no more than 70% of the value of the new home you want to buy. So if your existing property was worth £250,000 you’d need to be buying a property worth £357,142 – a big leap up the ladder for most people.

Before you sign on the dotted line, be 100% sure. If a housebuilder agrees to buy your property via part exchange and you later decide not to move, there could be a penalty fee to pay.

NewBuy mortgages

First-time buyers and second-steppers buying through NewBuy have a choice of six mortgage lenders who have signed up to the scheme. They are Halifax, Santander, Natwest, Nationwide, Barclays and Aldermore.

However, rates for NewBuy mortgages can be higher than for other mortgages. For example, Barclays offers a four-year fixed rate at 4.89% for NewBuy customers but offers a five-year fix at just 3.39% for first-time buyers, remortgages or homemovers with a 30% deposit.

Use lovemoney.com's innovative mortgage tool now to find the best mortgage for you online

At lovemoney.com, you can research all the best deals yourself using our online mortgage service, or speak directly to a whole-of-market, fee-free lovemoney.com broker. Call 0800 804 8045 or email mortgages@lovemoney.com for more help.

This article aims to give information, not advice. Always do your own research and/or seek out advice from an FSA-regulated broker (such as one of our brokers here at lovemoney.com), before acting on anything contained in this article.

Finally, we tend to only give the initial rate of a deal in our articles, but any deal which lasts for a shorter period than your mortgage term may revert to the lender's standard variable rate or a tracker rate when the deal ends. Before you take out a deal, you should always try to find out from your lender what its standard variable rate is and how it will be determined in the future. Make sure you take all this information into account when comparing different deals.

Your home or property may be repossessed if you do not keep up repayments on your mortgage.

More on mortgages and property

What is the NewBuy scheme?

The hidden cost of buying a new build

The cheapest small deposit fixed rate mortgage in ten years!

Barclays Family Springboard: buy a house with 5% deposit

Seven reasons mortgage lenders turn you down

How to beat Stamp Duty

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Comments (4)

  • CuNNaXXa
    Love rating 410
    CuNNaXXa said

    Even without NewBuy, there are organisations that will buy your home from you for a percentage of what it is worth, market value.

    I had one of these when I was selling my own home a few years back. They offered 80% of the market valuation, which seems quite good, until you realise you lose £20,000 for every £100,000 of the home's value.

    With my own home being valued at £300,000 by three independent estate agents, that would mean I would get £240,000. Far below what the property is worth, and way too much of a hit. In the end, I actually achieved £280,000, which although is £20,000 less than I wanted, was still £40,000 more than I was offered by this organisation.

    I know we buy and sell cars for profit and loss, but there is a world of difference losing a few grand on a new purchase and losing double figure grands on your home, which is supposed maintain a reasonable value independent of age (a home does not depreciate like all our other possessions).

    We did do a part exchange with Galliford Sears back in the nineties when they bought our three bed semi for £45,000, when it was worth £54,000 market value. That didn't seem so bad, but in today's financial climate, no one can afford to lose too much in the value of their previous home, otherwise they need to find the additional finance for their new home.

    As for estate agent fees, how can they charge more for selling a more expensive house when the effort put in is no different from selling a cheaper house. Do they use better brochure paper?

    Report on 25 February 2013  |  Love thisLove  0 loves
  • yocoxy
    Love rating 152
    yocoxy said

    @cuNNaXXa: "They offered 80% of the market valuation, which seems quite good, until you realise..."

    How long did it take to realise that 80% is 20% less than 100%??!!

    Report on 03 March 2013  |  Love thisLove  0 loves

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