NewBuy scheme - what are your thoughts?

playaz

Hi guys,

As you'll know the Government is pushing the NewBuy scheme that allows buyers to purchase brand new build homes up to the value of £500k providing they have at least a 5% deposit.

I just wondered what everyone thinks are the pros and cons of this deal and whether or not it benefit people in the long term?

gingeralan

playaz wrote: »

Hi guys,

As you'll know the Government is pushing the NewBuy scheme that allows buyers to purchase brand new build homes up to the value of £500k providing they have at least a 5% deposit.

I just wondered what everyone thinks are the pros and cons of this deal and whether or not it benefit people in the long term?

I think this Newbuy scheme is a bad idea!

I do not think it will benefit first time buyers in all honesty, the problem currently is one of affordability. It does not matter if you can borrow a higher ltv if you cannot actually afford the price. Allowing people to borrow with a smaller deposit will probably lead to people over extending themselves.

If you want to buy a house save up. You will be much better waiting a couple of years and buying with larger deposit rather than borrowing at high ltv, with a very limited range of mortgages that are quite high in comparison to the open market.

This will probably not really help anyone apart from a few house builders that will be able to continue to screw customers for a few more months.

alex1987_2

I'm currently looking into the new buy schemes.

Whilst i appreciate the risks involved with high ltv, we can afford the repayments and feel comfortable with a 5 year fix. I wouldn't be prepared to take a 2 year fix though at this rate of ltv.

bobula

its the cost that gets me rather than the LTV - im looking at it thinking hmmm this house will be negative equity almost as soon as its bought from a combination of over valued vs LTV being so high.

i thought that was the whole reason that banks like a fair deposit(*ie more than 10%) on a new build ?

mimimt

Putting aside negative equity, there is one issue associated with this scheme that really bothers me.

The government is implicitly (or explicitly) guaranteeing the performance of these high LTV loans. If the buyer defaults, the government will use its own balance sheet (i.e. taxpayers' money) to bail out the bank/builder/buyer. I do not think it's fair for other taxpayers to be taking the risk and guaranteeing the few new buyers who will benefit from the scheme. Ultimately though, the scheme benefits the lenders who are guaranteed that their loans will be repaid one way (by the new buyer) or another (by the government or taxpayers at large).

myhouse_2

It helps first time buyers get quickly onto the ladder by encouraging them to pay over the market value.
If you are a FTB who wants a house sooner than later and don't mind the extra cost then it's probably a good scheme for you.

wymondham

There is another thread covering this in detail....

Ask yourself one question - why does this scheme ONLY apply to to new build property if it is supposed to help buyers? The answer speaks volumes!!!

gingeralan

alex1987 wrote: »

I'm currently looking into the new buy schemes.

Whilst i appreciate the risks involved with high ltv, we can afford the repayments and feel comfortable with a 5 year fix. I wouldn't be prepared to take a 2 year fix though at this rate of ltv.

I really do not think it is sensible to just think about being able to afford the monthly repayments. A new build property does lose value at least for a short peroid after you have bought it while others which remain unoccupied are still for sale (why would you buy a used house for the same or more than the brand new ones up the road). Would it be an issue if circumstances changed and your income was reduced for an extended period?

So I think this scheme does not help people very much, if might allow one to accomplish an immediate objective, but could lead one to a sticky situation if one needed to sell the property. Why not give it some time, build a bigger deposit, and have a selection of the full market? High LTV lending was a large part, I believe, of the financial crisis we are going through.

Hope it works for you if you do decide to go ahead.

alex1987_2

I understand and appreciate there is a new build premium.

The property we are looking at is currently a finished house at the end of a build. I wouldn't be comfortable buying a house at the beginning of a build for the exact reason that if we ever needed to move we would struggle whilst there were plenty of new houses remaining.

As we aren't looking at this as an investment and want it to be a long term family home, coupled with the reasonable security a 5 year fix offers enabling us to pay off a chunk of the capital means that at the end of the 5 years we should be in a reasonable position to remortgage etc.

In terms of a loss in income both myself and my partner have illness cover that should cover us in most cases, and in the worst case we would have to do what most other people who have mortgages would have to do and sell up and buy somewhere smaller or rent.

Thanks though for a positive/friendly response, as most i see on these forums around new builds and high ltv's can be very negative....

poppy10_2

alex1987 wrote: »

Thanks though for a positive/friendly response, as most i see on these forums around new builds and high ltv's can be very negative....

Is it healthy to see only those replies that agree with your preconceptions as 'positive'? There are good reasons for warning people off these scams.

Fullbra

wymondham wrote: »

There is another thread covering this in detail....

Ask yourself one question - why does this scheme ONLY apply to to new build property if it is supposed to help buyers? The answer speaks volumes!!!

The reason is that the builders/government are funding the insurance policy that protects the lender against the risk of high loan to value lending.