New build home warning as lenders shun 95% mortgage guarantee scheme
MAJOR lenders are refusing to offer 95% mortgages on new build homes under the government’s new loan guarantee scheme.
The government launched the scheme for wannabe homeowners with a 5% deposit earlier this week to help them get on the property ladder.
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The scheme, which was first unveiled in Rishi Sunak’s March Budget, will run until December 31, 2022.
It comes as 95% loan-to-value (LTV) mortgages have largely disappeared since the coronavirus pandemic began.
Lenders providing the loans can buy a guarantee that will see the Government compensate them for a portion of their losses in the event of a repossession.
But despite this guarantee, none of the five major lenders – Lloyds, Barclays, Santander, HSBC and Natwest – will be offering the 95% loans on new build homes.
This is because lenders can be “wary” when it comes to new builds, said Chris Sykes, of mortgage broker Private Finance.
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WE explain how to ensure you get the best deal on your mortgage or remortgage:
Websites such as MoneySuperMarket and Moneyfacts have mortgage sections so you can compare costs. All the banks and building societies will have their offers available on their sites too.
If you’re getting confused by all the deals on the market, it might be worth you speaking to a mortgage broker, which will help find the best mortgage for you.
A broker will typically cost between £300 and £400 but could help you save thousands over the course of your mortgage.
You’ll also have to decide if you want a fixed-deal where the interest you’re charged is the same for the length of the deal or a variable mortgage, where the amount you pay can change depending on the Bank of England Base Rate.
Remember, that you’ll have to pass the lender’s strict eligibility criteria too, which will include affordability checks, and looking at your credit file.
You may also need to provide documents such as utility bills, proof of benefits, your last three month’s payslips, passports and bank statement.
He told the Sun that brand new homes – like a shiny new car – can cost more and this premium price can end up being as high as 5% of the property’s value which may not carry over as a resale.
“It doesn’t necessarily mean that, after two, five or ten years, your property will be worthless,” he said.
“But from a lender’s perspective, if they needed to repossess your property six months into ownership due to you not paying them, it may well be the case they could only sell your property for 90-95% of what you bought it at.”
He added that this is made more likely since the development would probably still have brand new properties for sale, maybe even next door, that people would rather buy new.
Meanwhile, Aneisha Beveridge, of Hamptons International estate agents, said: “New-build homes are less likely to sell at a profit than second-hand homes.”
One in ten new build sellers sold their property for less than they paid for it in 2010, she added.
This compared with just 4% of people selling second-hand homes last year.
Meanwhile, 77% of sellers who sold new-build homes last year after one to six years made a capital gain compared to 89% of second-hand properties, according to analysis by Hamptons.
Data from property website Rightmove also showed that the average asking price for a new-build three-bedroom semi-detached house is 32% more than for a comparable second-hand home.
In the East Midlands, the North East and London the respective price jumps were 23%, 22% and 18% respectively.
Mark Harris, of SPF Private Clients mortgage brokers, said that lenders wariness comes from a “combination of things” including the legacy left over from the credit crunch.
This led to huge losses for lenders in the new build space.
But for first time buyers looking to purchase a newbuild, he said: “There’s nothing wrong with the product.
“You’ll just have to…
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