Bye bye New Buy ?

There is rising concern that the Government’s flagship NewBuy scheme has hit trouble, just two months after its launch.

The scheme, which launched on March 12, allows first-time buyers and home movers to purchase a new-build house worth up to £500,000 with a 95% mortgage, with taxpayers and developers underwriting the loan.

But the scheme has been dogged by controversy, with mortgage lenders offering NewBuy mortgages at high rates that have come under increasing fire from house builders.

The three lenders in the scheme when it launched have all hiked their rates: NatWest, which offered the best initial rates, at 4.29% for a two-year fix and 4.99% for a five-year fix, has hiked them up to a current 4.79% and 5.49% respectively.

Barclays and Woolwich have also raised their initial rates, with the latter now offering a three-year fix at 6.09%. Lloyds Banking Group, which entered the scheme after launch to become the fourth NewBuy lender, offers rates of around 6%.

Mike Farley, chief executive of Persimmon Homes, says the scheme will not work unless the lenders drop their rates. He said: “There’s nothing wrong with the concept, but to make it work we need a lower rate or people will drop out.

“The rates are so high, people won’t be able to afford the repayments, and that will put the brakes on.”

Pete Redfern, chief executive of Taylor Wimpey, said it is ‘very difficult’ to know if the scheme will work or not, and he said lenders would have to find the right rates. He said: “Individual lenders are nervous that if their rates are too low, they will take market share and that will distort their mortgage book.

“It is not the end of the story, but it is unfortunate and I hope it doesn’t knock the train off its rails.”

Santander has yet to launch into NewBuy but says it will do so, and smaller lenders may enter the arena, with hopes among developers that more competition will encourage better pricing.

Aldermore, the new bank launched two years ago, says it intends to launch a NewBuy deal but wants to see how the larger lenders are doing first.

Estate agents have been among the most vocal critics of the scheme, pointing out that buyers of new homes pay a high premium, and that while NewBuy is designed to offer some protection to lenders should they need to repossess a property, the indemnity will not stop purchasers falling into negative equity.