Mortgages: NewBuy mortgage scheme, your questions answered

Posted on March 13th, 2012 | Categories - News

The government tried to kick start the housing market yesterday when it launched the NewBuy mortgage scheme.

But how will it work? Are you eligible?

Read on to discover the answers.

Are you looking for mortgage advice? Got a question about NewBuy mortgages?

Linda Wood, Investment Sense mortgage adviser in Nottingham

Contact Linda Wood today:

0115 933 8433

linda.wood@investmentsense.co.uk

Online enquiry form

Who is eligible?

The NewBuy scheme is open to both first time buyers and existing homeowners wanting to buy a new property in England.

You have to be a UK citizen to qualify for the scheme.

How does the scheme work?

The purchaser must have a minimum deposit of 5%; a mortgage is obtained against a new build property from one of the participating lenders. The mortgage is guaranteed by the developer and government, although the guarantee is for the benefit of the lender and not the borrower.

Does the property have to be my main home?

Yes, the scheme is not available to people buying property to rent out.

Do I have to have a 5% deposit?

Yes, you must have 5% of the purchase price to be eligible for the scheme; you will also need to pay costs such as stamp duty, legal fees and survey fees.

The deposit must come from your own savings and can be as much as 10%, but a minimum of 5% is needed.

Which mortgage lenders are taking part in the NewBuy scheme?

At present only Natwest, Barclays and Nationwide are offering mortgages under the scheme.

Other lenders, for example Halifax and Santander, are expected to join over the next few months.

Which builders are taking part?

Currently seven builders are signed up to the scheme: Barratt, Bellway, Bovis, Linden Homes. Persimmon, Redrow and Taylor Wimpey.

What is the maximum purchase price?

£500,000.

How will the mortgage deals on the NewBuy scheme compare to other options?

NewBuy mortgages are currently only available on a fixed rate, the idea being that borrowers will be protected from future interest rate rises.

It is expected that deals under the NewBuy scheme will be slightly more expensive than traditional mortgages, but nevertheless competitive.

The most competitive fixed rate under the NewBuy scheme is offered by Natwest with a rate of 4.29% fixed for two years, then reverting to the lenders Standard Variable Rate currently 4.00%, overall Cost for Comparison 4.2% APR, or 4.99% fixed for five years and then reverting to the SVR of 4.00%, overall cost for comparison 4.6% APR; both of these mortgages have a £499 arrangement fee.

The fixed rates for both Nationwide and Barclays are currently higher than those offered by Natwest.

There are other differences between the lenders, for example the Nationwide are only offering NewBuy mortgages on properties worth between £250,000 and £500,000.

Nationwide and Barclays are offering their mortgage deals through brokers and also direct to the public, whereas Natwest are not offering their NewBuy mortgage through advisers.

Are there any other differences to a traditional mortgage?

No, not really.

The mortgage lender will assess your application as it would any other, looking at your credit history, your earnings and assessing your ability to maintain the monthly payments, before it makes a decision to lend.

Does the guarantee mean buyers will be protected from negative equity?

No, the guarantee is there for the benefit of the lender, not the borrower.

Your property may be repossessed if you do not keep up repayments on your mortgage.

For providing mortgage advice we will charge an application fee of £299 and we may also be paid a fee from the lender, any fee paid by the lender will be disclosed to you. Alternatively we will charge an arrangement fee of 0.5% of the loan and refund to you any payment received by us from the lender.