Tens of thousands of people could be helped to buy newly-built homes
Tens of thousands of people could be helped to buy newly-built homes worth up to £500,000 after the Government said it would use £1billion of taxpayers' money to ensure they get mortgages with just a 5 per cent deposit.
Set out in a bid to kickstart the flagging property market the move heralds the return of 5 per cent deposits rather than the 20 per cent typically demanded by lenders since the credit crunch. But MPs were warned that the NewBuy scheme, which could allow people to put as little equity as £11,000 into a £228,000 house, could spark another credit crisis, through escalating house prices and poor interest rates on mortgage deals associated with this scheme.
Under the NewBuy scheme, which is for first-time-buyers as well as existing home owners, the Government will contribute 5.5 per cent of the value of a mortgage on a home worth up to £500,000. The housebuilder will put up 3.5 per cent, to help guarantee mortgage lenders against any losses and stimulate a wave of fresh lending. Buyers would still be required to come up with the 5 per cent deposit and pay off the full loan in time - worth up to 95 per cent of the value of their home. But if they defaulted, the house builders' and Government's money would be kept by the lender.
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.
However, the project, which could help up to 100,000 people, has been derided by critics as a gimmick that will help the construction industry rather than struggling home buyers. Barratt Developments said the scheme is already proving popular and nearly 20,000 people have registered interest on its website.
As well as helping buyers to get into the market, the scheme is intended to support 50,000 jobs in construction and related industries.
The Prime Minister said: 'Strong families and stable communities are built from good homes. That's why I want us to build more homes and I want more people to have the chance to own their own home.
'We are acting today across the board to make this happen.
'We're re-booting the right to buy scheme to increase discounts for two million tenants in social housing in England.
'And we're delivering on our promise to offer affordable mortgages to buyers who might otherwise not be able to raise the money to buy a newly-built home. It's no good hoping people will climb the property ladder if the bottom rung is missing. Affordable properties and available mortgages are vital.'