Controversial NewBuy 'will not help many purchasers'

Six months after launch, NewBuy, the controversial scheme that enables buyers to purchase a new-build home with a 95% mortgage, has been hailed as a success by the builders’ trade body that helped to devise it.

But at the same time, research out today shows that the scheme will make buying a home only a ‘bit more likely’ for most, and that six out of ten people are simply not interested in buying a new home.

The NewBuy scheme launched in March to lend 95% mortgages to first-time buyers and other purchasers of new homes costing up to £500,000. The scheme, which is underwritten by taxpayers and developers, does not protect buyers against falling into negative equity, but does indemnify developers should they have to repossess a NewBuy property and sell it at a loss.

Nor do all developers agree with the success verdict delivered by trade body, the Home Builders Federation.

Speaking at the Westminster Social Policy Forum last Thursday, John Tutte, group managing director of Redrow Homes, said: “The NewBuy uptake is disappointing because, frankly, the interest rates are currently too high.

“NewBuy should be the solution for people wanting to trade up into a larger new home. But it is not.”

He said that a borrower with a typical Halifax mortgage wanting to trade up from a £200,000 home to a £250,000 home using a NewBuy deal would end up paying over £500 a month more on their mortgage.

Tutte said: “Based on this example, is it any surprise that NewBuy take-up is lower than expected?”

Separately, this morning’s research shows that out of 4,183 people surveyed by Rightmove between August 13 and August 20, 78% say that NewBuy will make buying a home in the next 12 months a ‘bit more likely’, with just 12% saying that it would make it ‘much more likely’.

Even in the group with the most reason to use NewBuy – those wanting to buy a home in the next 12 months but who do not feel in a financial position to do so – only 6% said the scheme would make a purchase ‘much more likely’.

The research also found that 34% of first-time buyers and 51% of home-movers were unaware of the scheme.

When NewBuy was explained to them, Rightmove said it was clear that the ‘scheme has the potential to benefit those struggling to get on the housing ladder’ – but the research also threw up the biggest stumbling block of all to NewBuy: 60% do not want to buy a new home.

Alex Solomon, Rightmove’s new homes director, said: “Our experience of the new-build property sector is that around half of those who purchase a new-build home don’t set out to purchase one initially.”

However, the Home Builders Federation insisted that with 1,300-plus NewBuy reservations now taken, the scheme ‘is starting to really take off’.

At launch, NewBuy had seven builders and four lenders on board. There are now over 30 builders selling homes using NewBuy and last week Aldermore became the sixth lender.
 
The HBF said that ‘take-up of NewBuy has been broadly in line with the successful shared equity scheme FirstBuy’ and predicted that take-up of the scheme is expected to continue to increase.

The HBF also said the level of interest in NewBuy is demonstrated by the fact that the NewBuy website is due to have had its 100,000th visitor.

Stewart Baseley, executive chairman at HBF, which proposed and developed the scheme with the Council of Mortgage Lenders, said: “We are now starting to gain some real momentum, and with more and more builders and lenders coming on board, are confident NewBuy will make a real difference.
 
“We know people want to buy, but many have been thwarted by the current large deposit requirements. NewBuy is proving a lifeline for people as it allows them to buy their dream home with a 5% deposit.

“Many NewBuy first-time buyers had been trying to save a deposit while staying at home with their parents or living in rented accommodation. Other buyers have been home owners stuck in a house no longer big enough for their growing family.

“NewBuy is proving a real winner for them after such a frustrating time.”