NewBuy - a scam to transfer from poor to rich

thelawnet

Not sure if this is a thread about this, but here's mine anyway.

Info:
http://www.communities.gov.uk/housing/homeownership/newbuy/newbuyglance/

• the property to be mortgaged must be a new build property in England, constructed by a builder who is in the scheme
• the price of the property must be less than £500,000

• housebuilders will put 3.5 per cent of the sale price into an indemnity fund for each house or flat sold through the scheme, and Government will provide additional security for the loan in the form of a 5.5 per cent guarantee
• in the event of repossession, the lender will be able to recover any losses on the mortgages to the maximum covered by the home builder's fund, and then call on the Government guarantee to an agreed level.

• Barclays who will offer 95 per cent Loan-to-Value mortgages on properties built by Barratt, Bellway, Bovis, Persimmon, Redrow and Taylor Wimpey at just 4.99 per cent fixed rate for two years and 5.89 per cent fixed rate for four years
• Nationwide who will offer 95 per cent Loan-to-Value mortgages on properties built by Barratt, Bovis, Bellway, Persimmon, Redrow and Taylor Wimpey at just 5.69 per cent fixed rate for three years and 5.99 fixed rate for five years; and
• NatWest who will offer 95 per cent Loan-to-Value mortgages on properties built by Barratt, Bellway, Bovis, Linden Homes, Persimmon, Redrow and Taylor Wimpey at just 4.29 per cent fixed rate for two years and 4.99 per cent fixed rate for five years.

Here's the scam:

1. new-builds are inevitably hideously over-priced because the builder wants to make a profit.
2. this means that a buyer at 95% LTV is in negative equity the day he exchanges
3. this negative equity is compounded by the fact 3.5% of the buyer's money is being put in an indemnity fund by the builder.As I understand it, the money is pooled, so much of it will never be recovered due to defaults, even though it is theoretically repayable after 7 years, and therefore the 3.5% just goes straight on the already expensive asking price.
4. the government funding amounts to free money for the banking industry - whereas Natwest's 2-year 85% LTV fixed product has a 3.95% rate, the NewBuy scheme, which is effectively 86% LTV, is 4.29% LTV - much more profitable, while Nationwide offer 4.39% to 85% LTV customers, as against 5.69% on the scheme.
5. the government money (£1 billion!) is also a subsidy to the home builders; these builders contribute millions to the Conservative Party. The donors donate relatively small sums (in the millions) in return for £1 billion+ of taxpayer's cash
6. the scheme will allow people to buy homes worth up to £500k. At 95% LTV, this is £475k borrowed. This implies an income of well over £100,000 per year. According to statistics, and the government, people earning this much are 'the 1%', the super-rich, taxed at 51 and 61%. So this is a scheme to allow the very rich to buy expensive houses, using money taken from the very poor, by means of taxation
7. the fact that half-a-million pounds is considered a reasonable sum for the inclusion in such a scheme shows the warped thinking of those responsible for these schemes. When did £500k become a small sum, subject to government subsidy?
8. the inclusion of £500k houses in this scheme shows the intent of the government to reward spendthrift, profligate behaviour. While someone earning a modest salary, say £25,000/year, might struggle to save a deposit, the repayments on a £475k mortgage are £3,100/month. Assuming 35% of net pay goes on mortgage (the recommended maximum), that's £8857/month NET pay, equivalent to a salary of £180k/year. How the F*** do you earn £180k/year but are not able to save a deposit?

oldvicar

Interesting views!

I supose that the professional valuers employed by Barclays/Nationwide/NatWest are expected to collude and fraudulently value these homes at the sale price.

Or they could be honest and knock off the 3.5% overpricing for a start.

Loopgames

thelawnet wrote: »

Here's the scam:

1. new-builds are inevitably hideously over-priced because the builder wants to make a profit.

Well buyers can still place their offers in. They don't have to pay the over priced asking price do they? Buyers must be savvy - not fooled to feel desperate to 'own' their own home.

Ronaldo_Mconaldo

You don't get something for nothing. They're not going to give away a mansion for a knock down price for every university leaver no matter how much whinging you do. You'll get yourself a a crappy box of a house at a discount that you'll have to pay back several times over in the future and if you miss repayments then you'll get booted out on your ear.

vivatifosi

I've listened to the view of several commentators on this and they have all said that it is just a way to keep housebuilders building and does very little to help the ftb community.

chewmylegoff

If govt wants to subsidise house building it would be better off paying house builders a direct cash payment for every house they sell in my view, rather than complex schemes like this. In return for the subsidy get house builders to agree to sign up to building targets with subsidy payments clawed back in the event that building targets are not met.

CRASH_BANG_WALLOP

last throw of the dice by a desperate government hoping to suck in a few dudes

Graham_Devon

CRASH_BANG_WALLOP wrote: »

last throw of the dice by a desperate government hoping to suck in a few dudes

It won't be the last throw.

There will probably be another scheme very soon. Each scheme appears to last 6-8 months.

oldvicar

chewmylegoff wrote: »

If govt wants to subsidise house building it would be better off paying house builders a direct cash payment for every house they sell in my view, rather than complex schemes like this. In return for the subsidy get house builders to agree to sign up to building targets with subsidy payments clawed back in the event that building targets are not met.

The trouble with that is subsidies cost money. Its spending other people's money (yours and mine). Either that or they'd have to print it.

Percy1983

I must say I have looked at similar schemes as a FTB and wouldn't touch any of them.

With that if somebody is happy to do it then let them.

FTBFun

vivatifosi wrote: »

I've listened to the view of several commentators on this and they have all said that it is just a way to keep housebuilders building and does very little to help the ftb community.

Building more properties does help FTBs though (in a way) by increasing the housing stock.

Saying that, if I was still one I wouldn't touch this with a bargepole.