Buying a New Build (Newbuy)

cloudy11

Hi everyone

I am hoping you can help me and my husband get a little perspective on us potentially buying a new build home with the Newbuy scheme. Although we have done our research pretty thoroughly, buying our first house is pretty daunting and we seem to be going around in circles.

The property is a 3 bed detached (we only want to buy detached ideally). We are happy with the asking price and it is similar to other properties in the area, so not hideously overpriced. Luckily we live in quite an affordable part of the country (the price is approx £150k) The estate/ community has a really nice feel and we love the design of the house.

At the moment we are in rental accomodation and we are expecting our first child in the autumn, so we would have to move (currently live in a one bed flat). We were originally going to move into another rental. However, we then realised we can go through the Newbuy scheme 5% deposit on this new build property.

The mortgage re-payments would be roughly the same as our current rent. We would also be only having a mportgage that is approximately 2 x our joint salary. Rents for the type of house we would have to move into are higher than the mortgage. Despite all of this, we keep hearing about the dangers of new builds (and issues with new estates) and particularly the Newbuy scheme.

It seems as though this is a good opportunity- otherwise we will be renting for another 2/3 years at least which just gets so depressing! Although the house is not huge, it is perfectly liveable and we really love it.

Are we being completely ridiculous to think that this is a good opportunity for us? I would really appreciate any opinions.

OddballJamie

I think you will come across the same problem I had when I looked into the old scheme in 2011. My partner and I earn too much to qualify for the house we were interested in.

The scheme is setup to help people who have no other way of affording the house. As you have said the house is only twice what your joint income is a year, I think they will reject you because of this.

"You cannot choose to take a lower mortgage if your affordable income multiple suggests you can afford and sustain a higher one.
This is because the scheme is designed to assist buyers by giving them the help they need (but not more than that) to buy a new home.
With limited resources available, the Agency is seeking to help as many buyers as possible, and allowing a buyer to reduce their mortgage
(and maximise their equity loan) could stop others from also benefiting from the initiative."
Source: http://www.helptobuy.org.uk/pdfs/Help_to_Buy_Buyers_Guide_270313.pdf
Page 10

cloudy11

OddballJamie wrote: »

I think you will come across the same problem I had when I looked into the old scheme in 2011. My partner and I earn too much to qualify for the house we were interested in.

The scheme is setup to help people who have no other way of affording the house. As you have said the house is only twice what your joint income is a year, I think they will reject you because of this.

"You cannot choose to take a lower mortgage if your affordable income multiple suggests you can afford and sustain a higher one.
This is because the scheme is designed to assist buyers by giving them the help they need (but not more than that) to buy a new home.
With limited resources available, the Agency is seeking to help as many buyers as possible, and allowing a buyer to reduce their mortgage
(and maximise their equity loan) could stop others from also benefiting from the initiative."
Source: Page 10

Hi, thanks for your reply. However, there is no income limit on the Newbuy scheme, it just needs to be on a newly built property under £500,000.

From the gov website:

You don’t have to be a first-time buyer and there’s no limit on your level of income. But you can’t use NewBuy with any other publicly funded mortgage scheme.

OddballJamie

I think you've misunderstood my original post, there is no limit on your level of income but your income has to be right for the price of the house.
If the property is 2x salary, I doubt you will be successful, whereas if it was 4x salary to would have a better chance. The scheme is setup to help people buy a house that they would not otherwise be able to afford.

Have a read of the PDF that I linked to and the quote from it in the previous post, this will explain it.

Btw the house limit is £600k.

OddballJamie

Also a quote from the .gov website
"Help to Buy equity loan will be available from 1 April 2013 to all those who aspire to own a new build home, but struggle to access or afford the repayments on a low deposit mortgage."

If you earn twice the value of the house you will not struggle to afford the repayments on a higher LTV mortgage.

You'll have all this explained to you when you speak with a mortgage advisor. They may offer you the option of applying for the mortgage in just the higher earners name to bypass the issue.

cloudy11

OddballJamie wrote: »

I think you've misunderstood my original post, there is no limit on your level of income but your income has to be right for the price of the house.
If the property is 2x salary, I doubt you will be successful, whereas if it was 4x salary to would have a better chance. The scheme is setup to help people buy a house that they would not otherwise be able to afford.

Have a read of the PDF that I linked to and the quote from it in the previous post, this will explain it.

Btw the house limit is £600k.

Sorry I can't post links as a new user, but I think you are referring to the Help to Buy scheme, not the Newbuy that started in April 2013. The Newbuy is only for new houses, under £500,000. The Help to Buy properties can go up to £600,000.

We already had a mortgage offer in principle, so I really don't think the income relative to the property price is an issue for the Newbuy.

Thanks though!

kingstreet

Oddball - you are mixing up NewBuy (95% mortgage) with Help To Buy - Equity Loan. They are completely different.

cloudy - you have to live with the possibility of a property worth less than you paid for it for the first few years. This is the potential issue with newbuilds.

This means potential negative equity for the smaller deposit case, should you need to sell in the early years.

OddballJamie

cloudy11 wrote: »

Sorry I can't post links as a new user, but I think you are referring to the Help to Buy scheme, not the Newbuy that started in April 2013. The Newbuy is only for new houses, under £500,000. The Help to Buy properties can go up to £600,000.

We already had a mortgage offer in principle, so I really don't think the income relative to the property price is an issue for the Newbuy.

Thanks though!

Ah I see, hard to keep track with the amount of names the schemes have had over the years. :embarasse

If you have no plans to move in the next few years and no risk off your family out growing the house, then go for it.

OddballJamie

kingstreet wrote: »

Oddball - you are mixing up NewBuy (95% mortgage) with Help To Buy - Equity Loan. They are completely different.

cloudy - you have to live with the possibility of a property worth less than you paid for it for the first few years. This is the potential issue with newbuilds.

This means potential negative equity for the smaller deposit case, should you need to sell in the early years.

Off subject
Kingstreet, what would be the main advantages of one over the other, I gather Newbuy is aimed at good earners with low deposits. But wouldn't the Help to Buy scheme work out better if you re-mortgaged after five years to borrow the extra 20%?
Or are the rates on NewBuy that good that it wouldn't make any difference overall?

kingstreet

The difference on mortgage rate is about 1%, with HTB being 1% lower than NewBuy.

It's a bit like comparing apples with oranges though. HTB means a loan where you pay back an unknown sum in the future - a percentage of the future value.

What if you can't remortgage in five years? The interest charge starts on HTB and that may be at a point where your mortgage cost is higher.

Newbuy is a known article. From the buyer's perspective, it's a 95% mortgage. You could still have higher mortgage payments and unable to remortgage...

Not easy to compare the two.

cloudy11

Thanks for your help both.

I can't help thinking that even if the property does lose value, we might not be in any worse position than if we continued to rent for 5 years and then had nothing to show for it at the end. I hate the obsession with home ownership (and never thought I would be looking to buy a new build), but renting just seems so unstable and expensive anyway. Our rent is currently about £9k a year, which just seems such a waste when viewed over 4/5 years.