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27 Thursday Dec 2012

NewBuy off to a slow start Posted by:

After much speculation, the truth is out. The NewBuy Guarantee scheme has helped the grand sum of 250 people onto the housing ladder since its launch back in March. To be fair, these figures are for the first quarter so run until the end of June but still, it’s a very small drop in the ocean when you consider the number of people who would like to buy their first home.

Apparently, there have been 1,300 reseverations under the scheme, which is more encouraging, but there is no guarantee that these will all end up completing on a purchase. The scheme may have only been running for six months or so but awareness  is still poor. Website Rightmove says that 34 per cent of first-time buyers haven’t heard of it. But perhaps even more tellingly, 60 per cent said they didn’t want to buy a new-build home, which of course are the only properties covered by the scheme. Could this be the real problem with the scheme?

The other issue, of course, is the pricing of the mortgages available. There are now six lenders offering NewBuy mortgages, compared with four at launch. Some of the mortgage rates have fallen since March but then so they should as Swap rates – the rate lenders pay to borrow from each other – are around 40 basis points lower now than they were then.

Yet shouldn’t NewBuy mortgages be cheaper still, given the insurance element that lenders benefit from? Cheaper rates at higher LTVs would really attract buyers who are struggling to drum up sizeable deposits. The latest lending figures from the Council of Mortgage Lenders (CML) underline this: while the average deposit for first-time buyers fell to its lowest level in August in more than three years, it only fell to 19 per cent, down from 20 per cent. While it’s a move in the right direction, a 19 per cent deposit is still too much for many, particularly those buying in London. Only those with help from their parents can realistically expect to get together this amount of money.

Much store is being set by NewBuy and Funding for Lending in solving the first-time buyer situation. It seems that it will be a while before either scheme produces significant results. But there are some encouraging signs that more lending is being done. Data from the Bank of England reveals that banks and building societies upped their lending over the summer. What’s more, they expect to provide more credit to households during the rest of the year.

However, it is not all rosy. Mortgages continue to be aimed at borrowers with large deposits and credit-scoring has also tightened. These are worrying trends which need to be addressed if we are to encourage more first-time buyers.