Pete Redfern, chief executive of housebuilding company Taylor Wimpey, has suggested that the NewBuy scheme could be less effective than hoped because the interest rates on eligible loans are too high.
The NewBuy scheme was launched in March. It is designed to help those people who wish to buy a new-build property in England up to £500,000 as long as the developer has joined the scheme. Using NewBuy means that the purchaser only needs to provide a 5-10% deposit.
The main aim of the scheme is that it allows those with small deposits, and especially first-time buyers to get mortgage finance, which will then boost demand and help kick-start the market. It is hoped that the scheme will lead to an extra 100,000 new-build properties being sold.
Those who wish to use the scheme are limited to a small number of mortgage products. Currently only four lenders have signed up, and offer a choice of ten mortgage products. Pete Redfern has warned that the scheme is less likely to be successful as interest rates offered on these mortgages continue to rise.
“When it started we saw monthly mortgage repayments of 4.3 per cent and 4.8 per cent, but in the last couple of weeks they have moved to over six per cent, and perhaps beyond the point of what is affordable to some.”
Since the launch of NewBuy, Taylor Wimpey has seen around 60 reservations under the scheme.
The increase in mortgage loan rates has not just been seen within NewBuy, but is more widespread across the mortgage market. However, in a scheme where the aim to make obtaining a mortgage more achievable, increased the interest rate may push some buyers out of the market.
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