NewBuy lenders blasted by developers over 'excessive' rates

Thursday 26th April 2012

Lenders have been accused of undermining one of the Government’s flagship housing schemes by charging excessively steep rates on NewBuy mortgages.

The accusation has come from two bosses of big developers.

Redrow chairman Steve Morgan has described the rates being offered by lenders on the NewBuy mortgage indemnity scheme as ‘disappointing',  resulting in limited take-up.

He said: "The success or otherwise of this scheme will be entirely dependent on the lenders offering mortgages at competitive interest rates relative to the risks they are taking," he said. "At present the rates being offered by the lenders are disappointing."

Mike Farley, chief executive of Persimmon Homes, which has just announced that weekly sales are up 20% on a year ago, also hit out at the rates.

Under the NewBuy Guarantee, taxpayers and the builder underwrite the 95% NewBuild mortgages, available to both first-time buyers and home-movers purchasing new homes worth up to £500,000.

Farley said: “The concept is right and the demand is there. What is hindering its take-off is the rates.

“We are finding the affordability is not right because the rates they [lenders] have launched at are around 6%.”
 
Farley called for lower rates and more entrants to the market. Halifax this month became the fourth – and most expensive – lender to enter the NewBuy arena. Its products are two-year fixes at 5.99% with a £999 fee, and another with a 6.39% rate.

Meanwhile, NatWest and Barclays, two of the three original lenders backing the scheme, have raised their NewBuy rates from those on offer at launch. NatWest said its initial rates of 4.29% and 4.99% were promotional. It is now charging 4.79% for a two-year fix and 5.49% for a five-year fix, both with a £499 fee.

Roger Humber, of the House Builders Association, said the scheme “is beginning to look as if it could be very embarrassing” for the Government. Humber had earlier criticised the scheme as unfair to smaller builders, and said that questions could be raised about the ‘propriety’ of the Government providing indemnities “exclusively for the benefit of a few larger builders”.

According to the Daily Telegraph, the Home Builders Federation, which helped develop the scheme, has said in a letter that it is “not at all what was envisaged”.

* Developer Bovis Homes has announced that one of its customers has become the first person in England to buy a home with a NewBuy mortgage.

The buyer from Cambridgeshire has purchased a two-bedroom apartment through Nationwide.

Bovis CEO David Ritchie said: “We are delighted that NewBuy has helped this customer into their brand new Bovis Home. 

“At Bovis Homes we have been proactive in helping to develop low-deposit home buying solutions with lenders and we were delighted to be able to contribute as NewBuy was developed.”