MAJOR lenders are refusing to offer 95% mortgages on new build homes under the government’s loan guarantee scheme.
The government launched the scheme for wannabe homeowners with a 5% deposit earlier this week to help them get on the property ladder.
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The scheme, which was first unveiled in Rishi Sunak’s March Budget, will run until December 31, 2022.
It comes as 95% loan-to-value (LTV) mortgages have largely disappeared since the coronavirus pandemic began.
Lenders providing the loans can buy a guarantee that will see the Government compensate them for a portion of their losses in the event of a repossession.
But despite this guarantee, none of the five major lenders – Lloyds, Barclays, Santander, HSBC and Natwest – are offering the 95% loans on new builds.
What help is out there for first-time buyers?
GETTING on the property ladder can feel like a daunting task but there are schemes out there to help first-time buyers have their own home.
Help to Buy Isa – It’s a tax-free savings account where for every £200 you save, the Government will add an extra £50. But there’s a maximum limit of £3,000 which is paid to your solicitor when you move. These accounts have now closed to new applicants but those who already hold one have until November 2029 to use it.
Help to Buy equity loan – The Government will lend you up to 20% of the home’s value – or 40% in London – after you’ve put down a 5% deposit. The loan is on top of a normal mortgage but it can only be used to buy a new build property.
Lifetime Isa – This is another Government scheme that gives anyone aged 18 to 39 the chance to save tax-free and get a bonus of up to £32,000 towards their first home. You can save up to £4,000 a year and the Government will add 25% on top.
Shared ownership – Co-owning with a housing association means you can buy a part of the property and pay rent on the remaining amount. You can buy anything from 25% to 75% of the property but you’re restricted to specific ones.
Mortgage guarantee scheme – The scheme opens to new 95% mortgages from April 19 2021. Applicants can buy their first home with a 5% deposit, it’s eligible for homes up to £600,000.
This is because lenders can be “wary” when it comes to new builds, said Chris Sykes, of mortgage broker Private Finance.
He told the Sun that new homes – like shiny new cars – are often sold at a premium and this can be as high as 5% of the property’s value, which may not carry over as a resale.
Mr Sykes added: “It doesn’t necessarily mean that, after two, five or ten years, your property will be worthless.
“But from a lender’s perspective, if they needed to repossess your property six months into ownership due to you not paying them, it may well be the case they could only sell your property for 90-95% of what you bought it at.”
This is made more likely since the development may still have brand new properties for sale that people would rather buy, he added.
First-time buyers who get 5% deposit mortgages are also more vulnerable to house price falls, which could leave them in negative equity.
This is when your outstanding mortgage amount is higher than the value of your property.
Meanwhile, Aneisha Beveridge, of estate agent Hamptons International, said: “New-build homes are less likely to sell at a profit than second-hand homes.”
How do you find the best mortgage deals?
WE explain how to ensure you get the best deal on your mortgage or remortgage:
Websites such as MoneySuperMarket and Moneyfacts have mortgage sections so you can compare costs. All the banks and building societies will have their offers available on their sites too.
If you’re getting confused by all the deals on the market, it might be worth you speaking to a mortgage broker, which will help find the best mortgage for you.
A broker will typically cost between £300 and £400 but could help you save thousands over the course of your mortgage.
You’ll also have to decide if you want a fixed-deal where the interest you’re charged is the same for the length of the deal or a variable mortgage, where the amount you pay can change depending on the Bank of England Base Rate.
Remember, that you’ll have to pass the lender’s strict eligibility criteria too, which will include affordability checks, and looking at your credit file.
You may also need to provide documents such as utility bills, proof of benefits, your last three month’s payslips, passports and bank statement.
One in 10 new build sellers sold their property for less than they paid for it in 2020, she added.
This compared with just 4% of people selling second-hand homes last year.
Meanwhile, 77% of homeowners who sold new-builds last year after one to six years made a capital gain, compared to 89% of second-hand properties.
Data from property website Rightmove also showed that the average asking price for a new-build three-bedroom semi-detached house is 32% more than for a comparable second-hand home.
In the East Midlands, the North East and London the respective price differences were 23%, 22% and 18% respectively.
Mark Harris, of mortgage broker SPF Private Clients, said that lenders’ wariness comes from a “combination of things” including the legacy left over from the credit crunch.
This led to huge losses for lenders in the new build space.
But for first time buyers looking to purchase a new build, he said: “There’s nothing wrong with the product.
“You’ll just have to factor in that you’ll need to put in more of a product or go down the Help to Buy road.”
In other property news, Martin Lewis explains how anyone aged 18-39 can get £1,000 a year free towards buying a home.
Plus, we’ve rounded up eight things you need to know before buying a property.
Home buyers can now fix their mortgage for 40 years – but are they any good? We explain what you need to know.
