The government has launched a mortgage indemnity scheme to help more people get on to the property ladder.
NewBuy will allow people to purchase new-build homes with a deposit of just 5% and the government claims that the scheme will help up to 100,000 people get on the property ladder, while acting as a catalyst for growth in the construction sector.
It offers buyers of new-build houses or flats, worth up to £500,000, a mortgage worth up to 95% of the property purchase price. With such a high LTV rate, the state and the construction company both step in to reduce the risk to the lender.
Under the scheme, the construction company pays 3.5% of the sale price into an account held by the lending bank for seven years. The state also provides a guarantee of 5.5%, but that money will only be used if there is a major property crash.
The scheme is supported by a number of the country’s biggest construction companies, as well as lenders including Barclays and Natwest.
“We welcome the builders and Government sharing the risk to make this initiative possible,” said Moray McDonald, Mortgages Director at Natwest.
“We hope the increased demand it will create will help lift the economy via the construction of additional homes.”
But the scheme has come under fire from some critics, who claim that it is just a way of boosting the construction industry, and does not actually help people in the housing market.
Shelter’s chief executive Campbell Robb said the scheme “does almost nothing to help the growing number of families living in insecure private rented housing with hardly any protection from rogue landlords or unexpected rises in rent.