The Government unveiled its latest attempt to revive the struggling mortgage market on Monday, but it's loaded in favour of the lenders, according to John Cosgrave of Warrington-based Arley Homes.
NewBuy reduces the amount of deposit buyers have to save in order for the banks to lend them a mortgage on a new build property. Barclays, Nationwide and NatWest and seven house builders signed up to the scheme, which will see the builder set aside 3.5% of the sale price to cover the bank's potential losses should the economy face another crash, and the government guaranteeing another 5.5%, bringing the total indemnity to 9% of the sale price. This reduction of risk for the bank is designed to encourage the three lenders to offer up to 95% mortgages, with buyers only having to put up a 5% deposit, rather than the 20-40% currently required in order to access reasonable repayment rates.
Cosgrave said: "This is effectively a sop to the banks. All the risk is being taken by the buyer, the house builder and the taxpayer. Yet the banks, whose job it is to lend, takes no risk and still gets a return on the buyers' repayments over the lifetime of their mortgage. If there were to be another financial crash and the buyer unable to meet mortgage repayments, or the property were to go into negative equity, the buyer would lose out but not the bank which is guaranteed by the cash put aside by the house builder and underwritten by the taxpayer. This seems enormously unfair and is yet another demonstration of how this country is propping up and pandering to the banking sector, rather than compelling them to lend in order to support a more natural, holistic growth in the residential market.
"And then there is the issue of the government effectively promoting and subsidising seven of the UK's major house builders. These are private companies, which now have a new potential customer base thanks to a taxpayer-funded scheme. I'm sure there are many other industries in the UK that would be glad of such support.
"The scheme only works for national house builders, which have the cash flow to put aside 3.5% of the sale price for seven years. Those small and medium sized house builders across the UK who are not involved in the scheme are still subject to the natural demands of the market. With this artificial system in play, the government has further reduced their competitiveness. The government would have been better creating an impetus for the banks to lend properly in a more sustainable way that benefits not just seven companies but all house builders, and of course independent homeowners who themselves want to make the move.
"We're in the fortunate position of not having to sign up to NewBuy or any of its predecessors as our sales have remained strong throughout the downturn. We've sought our own solutions, namely an increase in the number of part exchanges we take and help for first time buyers with a 5% deposit paid scheme, but in the main it is good business which benefits both us and our buyers. Building good quality, attractive family homes in the right location is a straightforward strategy that pays off. Bad land purchasing decisions, uninspired design or poor quality construction ultimately lead to unsaleable product. I fear it is on these less successful developments that NewBuy participants will find themselves living as the big house builders use the scheme to offload their most unpopular new builds."