The NewBuy scheme is an affordable way for homebuyers to access the housing market. But how does it work?
How does NewBuy work?
Purchases buying through the scheme are able to make use of 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. The company that built the property pays 3.5% of the sale price into the fund along with the lender for seven years. The fund can be accessed by the lender should the homebuyer fall into money troubles.
The Government providers an additional guarantee of 5.5% of the sale price, though this money can only be accessed in the event of a major property crash.
The property must be worth less than £500,000 and it must be your main home.
Who offers it?
Five lenders are offering deals on the NewBuy scheme currently: Barclays, Halifax, NatWest, Santander and Nationwide.
There are many builders taking part, including Taylor Wimpey, Berkeley Homes, Redrow and Bovis Homes. You can see a full list on this page on the NewBuy website.
The positive of the NewBuy scheme is that it allows first-time buyers to purchase a property they otherwise would not be able to afford as a result of the higher LTV on offer.
However there are a number of negatives to bear in mind. The first is the small stake, or equity, buyers have in the property, which exposes them to the risk of negative equity (where the property is worth less than when it was purchased) should the value of the property fall.
The scheme is also limited in that it’s only available on new-build properties. Critics have suggested the scheme is designed as much to help builders shift new-builds as it is to help first-time buyers.
Finally, at the moment there is very little choice in terms of mortgages with only five lenders taking part.
More on buying a property
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