UK NewBuy scheme makes solid start, says CML
25-09-2012
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It points out that the initiative was only ever likely to deliver a small number of sales in the first few weeks but it has gathered momentum, and broader participation by lenders and builders and increasing awareness among consumers have helped the scheme to grow.
‘With 1,300 reservations to date, NewBuy is well placed to expand further in this autumn’s home buying season. For individual households capable of sustaining monthly mortgage commitments but unable to afford a deposit, NewBuy provides valuable assistance, and the scheme has already fulfilled some of its key objectives. But it is also important to view it both in the longer term and a broader policy context,’ it says.
More than half of those who have so far borrowed successfully through NewBuy are thought to have taken out mortgages with the maximum 95% loan to value ratio.
NewBuy is able to make higher loan to value mortgages available through a commitment by builders and the government to cover a limited amount of any future losses that lenders might otherwise have to bear. These could arise if a lender were forced to take possession of a property and sell it for less than the amount owed on the mortgage. Borrowers remain responsible for any shortfall between what is owed to the lender and the amount a property is sold for, and the scheme does not increase their protection. But it does improve their access to higher loan to value mortgages.
The UK government has identified increased provision of housing as an engine for economic growth. Earlier this month, it unveiled another package of measures seeking to boost construction, including the scaling back of affordable housing commitments for developers, state guarantees for infrastructure projects and housing, a boost for homes in the rental sector, the removal of planning restrictions and a £280 million expansion of the existing FirstBuy scheme.
The CML also points out that public awareness of the scheme has also taken time to grow and, given that housing transactions usually take several weeks or even months to complete, the number of purchases under NewBuy was always likely to be modest at first.
‘At the outset, we said that NewBuy had the potential to fulfil three key objectives for the housing market. After six months, it is clear that the scheme has successfully achieved the first two of them. After only six months, it is still far too early to deliver a verdict on the third broad objective that we identified for NewBuy, an increase in the supply of new housing as builders respond to increased demand, and the creation of more jobs in the construction sector. This can only be an objective for the longer term, and it may be several years before we can judge the scale of the contribution from NewBuy. But we have never suggested that NewBuy on its own is sufficient to kick-start the building sector,’ it adds.
