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New Help to Buy scheme may not be much use to first-time buyers as property prices continue to rise

New Help to Buy scheme may not be much use to first-time buyers as property prices continue to rise

Help to Buy scheme may boost

UK property prices
but may not be much use

to first time buyers

The controversial Government incentive scheme “Help to Buy” set for launch on 1st January 2014 is designed to aid first time buyers with property purchases and in turn this incentive could boost the UK residential property sales market without being of any real use to first-time buyers.

Morgan Stanley have issued a forecast that UK residential property prices are expected to increase between 8% and 13% before the end of 2014 and the bank reckons that its forecast is “supported by government policy”.

The investment bank’s prediction follows a warning by the Organisation for Economic Co-operation and Development (OECD) which says that the Help to Buy scheme offering 95% mortgages, due to launch in January 2014, could pump up UK residential property prices but would not necessarily increase the supply of available residential property.

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The Prime Minister David Cameron insists that the coalition Government’s plans to take a more pro-active role in the UK housing market is “absolutely right” in order to help struggling potential buyers to raise large deposits.

Speaking at a residential property construction site in Lewisham, Mr Cameron attempted to reassure people seeking mortgage advice, stating that the NewBuy Guarantee initiative will help “unblock” the housing market by providing 95% Loan-To-Value mortgages underwritten by homebuilders and the UK Government.

Three major mortgage providers have so far committed to the Government-backed NewBuy scheme.

Barclays, Nationwide Building Society and NatWest Home Loans intend to back the NewBuy scheme by offering products which will tie in with it. Santander and Halifax are also expected to begin offering similar mortgage products along the same lines at a later date.

The mortgage indemnity initiative will aim to help people invest in property even if they only have a deposit of 5% or 10%.

As well as helping people who are finding it tough to save towards 20% deposits, the project is designed to boost the construction sector by spurring demand for new-build properties.

First Time Buyers (FTB) looking to purchase homes in England worth up to £500,000 could be eligible for the scheme in the months to come. The Government will cover 5.5% of the value of each mortgage provided, while 3.5% will be covered by house builders.

Forecasts suggest that as many as 100,000 UK new build home buyers could gain mortgage funding through the scheme.

Mr Cameron said: “The problem today is we have lenders who are not lending so builders cannot build so the buyers cannot buy and it needs the government to step in and help unblock the market. The new scheme was absolutely right in attempting to lower the requirements to more affordable levels of between “£10,000 to £15,000” with the taxpayer and the construction industry underwriting the high loan-to-value (LTV) mortgages”.

However, as reported on “Spotlight” earlier this week, the scheme has already prompted heavy criticism from opposition parties.Read the full article here 

Labour’s shadow housing minister Jack Dromey was among the first to be openly critical of the mortgage indemnity scheme proposal, publicly stating that the Government needed to invest directly in the building of more new homes.

Some property industry pundits have labelled the scheme as a “gimmick” to boost the ailing UK construction sector.

Even some lenders remain fairly wary of the Government’s plans and are yet to sign up to the initiative, with only three major lenders signed up to take part so far.

Nonetheless, the Council of Mortgage Lenders has backed the scheme as “good news for home-buyers”.

The UK coalition Government’s NewBuy scheme was launched today, (12th March), aiming to provide a much needed boost for people seeking first-time buyer mortgages.

A recent survey by property portal Rightmove questioned over 2,726 potential house purchasers between March 5th and 7th 2012 about their awareness of the 95% NewBuy mortgages and how the new Government backed scheme might affect them.

Their results of the survey found that nearly 2 in every 5 first-time buyers believe that the introduction of the scheme means they are more likely to get on the housing ladder within the next 12 months.

The NewBuy scheme is available only on UK new-build properties.

However, some critics were already questioning the scheme before any official announcement was made.

Labour’s shadow housing minister Jack Dromey claimed that only 3 out of the original 7 lenders were participating, and that the number of developers in the scheme had fallen from 25 to 7.

The Council of Mortgage Lenders, which up until last week was unable to confirm whether the launch was even going to go ahead despite being co-architect of the scheme.

The CML issued a general, guarded statement, adding that it would issue further information when details of the scheme and participants were available.

CML Director General, Paul Smee, said: “NewBuy mortgages will help creditworthy borrowers who simply haven’t yet managed to build up a large enough deposit to gain access to finance to buy a newly-built home. NewBuy is good news for home-buyers, and potentially good news for jobs and the wider economy too. Borrowers need to understand the implications of high loan-to-value (LTV), borrowing, so we will be supporting the initiative with clear consumer information to help people decide whether NewBuy borrowing is an attractive option for them.”

The House Builders Federation (HBF) also issued a statement just days after it too had to admit it did not know for sure if today’s launch would go ahead.

Stewart Baseley, executive chairman of the HBF, said: “NewBuy will help thousands of people to meet their aspirations to buy a new home, freeing up the housing market and helping first-time buyers and those unable to take the next step on the ladder. The scheme will also provide a vital kick-start for house builders large and small who will be able to build the homes and create the jobs that the country desperately needs.

According to the research by Rightmove, 38% of those looking to buy for the first time stated they would be more likely to purchase a home over the next 12 months once the scheme was launched.

The scheme could also benefit ‘second-steppers’ – those looking to sell and trade up for the first time – with 24% of respondents in this group stating they would be more likely to purchase over the next 12 months.

Rightmove director Miles Shipside said: “NewBuy looks set to give a significant housing boost to the fortunes of those who need it the most. We’ve found that raising a deposit has long been the major obstacle for those looking to purchase a new home at the foot of the housing ladder. NewBuy helps address this challenge, and we’ve found that the knock-on effect is that, as of today, nearly two in five first-time buyers will be more likely to getting on the housing ladder via thanks to this initiative. First-time buyers and second-steppers have long been frustrated in their efforts to get on to or move up the housing ladder by prohibitive deposit requirements. Four out of ten first-time buyers cited ‘raising enough of a deposit’ to be their single biggest housing market concern in our recent First-Time Buyer Report. NewBuy opens the door to these groups and can also serve as a great stimulus to help safeguard and create jobs in the new build property sector.”

The HSBC and Yorkshire and Clydesdale banks have already said they will not be participating, and neither LloydsTSB or Santander have deals ready although Nationwide has said it will have NewBuy deals available.

UK Chancellor of the Exchequer George Osborne has decided not to extend the Stamp Duty holiday for First Time Buyers, (FTB)  provoking fury from critics with accusations of undermining the Government’s attempt to kick start the UK housing market.

The Government decision comes despite massive lobbying from the mortgage and estate agency industries and various organisations, including the Council of Mortgage Lenders, Nationwide, Legal & General.

The Government, however, says the Stamp Duty break has proved to be ineffective and it will end on March 24th 2012 as planned.

The Government has stated that they intend to produce proof of how the Stamp Duty holiday has not worked and will instead concentrate on other measures announced in its new housing strategy, notably its controversial mortgage indemnity scheme on which it has now unveiled a few more details.

The Chancellor revealed that the Government will underwrite the 95% mortgage scheme, which is available only for new-build purchases, by up to £1bn.

The Autumn Statement said: “The Government will take on a contingent liability which will build up in line with purchases under the scheme, to a maximum of £1bn.”

Under the scheme, taxpayers will be responsible for 5.5% of the value of each home purchased. Builders will put 3.5% of the value of each home sold under the scheme into a funding pot, which will be called upon by lenders if the properties are repossessed at a loss.

The initiative aims to help 100,000 households purchase a new-build home with a 5% deposit.

It is unclear how many first-time buyers have succeeded in getting on to the housing ladder because of the current Stamp Duty holiday, although evidence is that they have melted away.

The Royal Institute of Chartered Surveyors (RICS) warned that ending the Stamp Duty holiday could distort the market with a mini boom and bust.

A RICS spokesman said: “By choosing to end the relief in four months rather than immediately, there is a clear risk that there will be a spike followed by a dip in the housing market as buyers rush to take advantage of the relief before March. It was hardly surprising that the Stamp Duty break had failed to help first-time buyers, given the lack of affordable mortgages and homes on the market”.

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UK mortgage lender Nationwide have confirmed their participation in the UK Government’s newly announced New Build Indemnity Scheme.

The scheme is designed to boost the UK housing market, helping prospective buyers unable to raise the large deposits currently needed to secure a mortgage. It will allow first time buyers (FTB) to secure loans on newly built homes with only a 5% deposit, with security for the loan being provided by the Government and housebuilders.

Nationwide already offers a 95% mortgage with a rate of 6.14% through its Save to Buy scheme, and it has not yet been decided if the New Build Indemnity Scheme will make it possible for the building society to cut rates

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