The Scheme is designed to encourage Lenders to agree to smaller deposits than they have been in the recent past. Already Barclays, Nationwide and NatWest have signed up to the new scheme which stipulates that buyers meet the Mortgage Lenders requirements and that the Builder is registered with the Scheme.
Jim Cook, a Partner Solicitor at Gloucester based Tayntons LLP Solicitors http://www.tayntons.co.uk , with over twenty years’ experience in helping clients with the purchase of new build properties, commented,
“Normally you would need a deposit of 20 – 25% of the price of the home but under this Scheme some House Builders and the Government have agreed to cover a limited amount of any future losses that Lenders in this Scheme could suffer. This situation could arise for instance if the Lender has repossessed the property and sold it for less than the Mortgage outstanding on it.”
“You do not need to be a First Time Buyer. You will need to check with the Builder whether they take part in the Scheme. It is available for property prices up to £500,000.00. It must be a standard purchase that is to say not Share Equity or Shared Ownership. The property must be your main home and you must be a UK Citizen or have “indefinite leave to remain in the UK” and you must have saved the deposit without help from the Local Authority or Public Authority.”
Under the New Buy loan guarantee scheme the borrower will continue to be responsible for the payments to the Lender and in the event of the property being repossessed the borrower will be responsible for paying any shortfall between the amount the borrower owes to the Lender and the amount the Lender sells the property for.
Jim added, “The Scheme will not suit everybody. It is more than likely to be suitable for buyers who expect to stay in the property for a number of years rather than those who plan to move on quickly. This is because some New Build properties include an extra premium on the sale price that could reduce as soon as the property has been purchased. The result of that could be that especially if house prices fall you may not have enough money when selling this property to repay the mortgage. If you expect to stay at the property for a number of years this situation is less likely to arise and you are more likely to see an increase in the value of the property.”
“Whether a low deposit mortgage is right for you depends on your circumstances and you should really consult a Financial Advisor who will be able to tell you whether you are eligible.”
Jim Cook specialises in New Build and Affordable Housing Schemes (including New Buy) at Tayntons LLP Solicitors http://www.tayntons.co.uk/