The NewBuy Guarantee scheme is a new Government-backed initiative aimed at kick-starting the housing market by allowing more borrowers to secure up to a 95% loan to value mortgage on new build properties (houses and flats) from participating builders in England.
This scheme, launched in March 2012, enables buyers to put down a deposit of just 5% of the property value.
How does NewBuy work?
The government, in conjunction with the house builders, pay into an indemnity fund that can be used to reimburse the mortgage lenders in the event the buyer fails to keep up with payments on the mortgage.
This layer of security for the lenders mean they are more willing to give out a mortgage of 95% to allow the low 5% deposit.
If the buyer falls behind with their payments to the point where the property is repossessed, the lender may lose out if the property has to be sold at a lower value than the amount of outstanding mortgage debt.
To combat this the builder pays in 3.5% of the property value and the government pay in a percentage to be agreed between them and the lender.
Eligibility for NewBuy
- The property has to be being sold for the first time, or it has to be the first time sale of a conversion, for example, a new flat that used to be part of a house.
- The property needs to be priced at £500,000 or less
- The property must be the buyers only home and cannot be used for sub-letting.
- The property has to have been built by a builder taking part in the scheme and be built in England.
- The buyer will still need a mortgage and have to fit the mortgage lender’s criteria, and the mortgage is in no way guaranteed, and it cannot be an interest-only mortgage.
- NewBuy does not apply to interest-only mortgages and cannot be used in conjunction with any other publicly funded mortgage scheme.
| Pros | Cons |
|---|---|
| Home buyers get access to 95% loan to value (LTV) mortgages, meaning they only require deposits of 5% of the property value rather than the 20% typically demanded by UK lenders. | There are only certain builders taking part in this scheme so the choice of houses may be limited (find out which builders are taking part on the NewBuy website). |
| Mortgage lenders can lend at such high LTV ratios without worrying about taking on all of the risk. | A mortgage of 95% of the property price will have to be acquired. |
| Home builders get extra business due to increased demand for newly built properties in England, leading to a boost in housing supply. | Can only be used on new buildings, or buildings being sold for the first time in their current form. |
How do I apply for NewBuy?
If you think NewBuy could assist your purchase of a new build home and would like to apply, you should contact either a participating new-build development or mortgage lender to discuss eligibility. Alternatively, you can approach a mortgage intermediary who is introducing mortgages under the scheme.
If you meet the lender’s affordability and credit criteria, and qualify under the guidelines, they will be able to start your application for a NewBuy mortgage loan of up to 95% of the new build property’s purchase price. This will be assessed in the same way as any normal mortgage loan.
