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Monday 12 March 2012
Last updated 16 March 2012 14:22

New Home Buying Schemes : Social Tenants & First Timers

Council Tenants deposit reduced to just 5%


Details of the NewBuy Guarantee announced today

A scheme that will enable an estimated 100,000 prospective and existing homeowners to buy a home with much smaller deposits than currently required.

Issued by the Central Office of Government Information on behalf of the Department for Communities & Local Government.

The Press Release

12 March 2012

UNLOCKING ASPIRATION FOR A NEW GENERATION OF HOME BUYERS

Details of two ambitious schemes that will unlock the aspirations of a new generation of home buyers, and get Britain building thousands of new homes, were unveiled today by the Prime Minister and Housing Minister Grant Shapps.

Mr Shapps declared the NewBuy Guarantee open for business - a scheme that will enable an estimated 100,000 prospective and existing homeowners to buy their dream home with much smaller deposits than currently required.

The increased demand for new homes will also give a boost to house builders and the economy, and see thousands of workers returning to building sites across the country.

At the same time, the Minister announced details of the reinvigorated Right to Buy, which will give up to two million social tenants the opportunity to buy their council home with a discount of up to £75,000 and, for the first time, ensure that additional properties sold are replaced with new affordable homes for rent.

NewBuy Guarantee

From today three leading high street lenders and seven of the country's biggest building firms will begin to offer mortgages on newly-built properties to people with just a five per cent deposit; a financial product not available anywhere else in the market. Other leading names, including smaller house builders, are expected to follow their lead in the coming weeks and months.

Today's deals will mean that instead of a typical buyer requiring a £40,000 deposit for £200,000 property, they will now only need £10,000.The Government and house builders will help provide security for the loan, so if the house is then sold for less than the outstanding mortgage total the lender will be able to recover its loss.

The scheme, which has attracted strong support from many of the country's biggest house-builders and mortgage lenders, will offer help for up to 100,000 buyers who would otherwise be frozen out of the market.

The deals will include:

  • Barclays who will offer 95 per cent Loan-to-Value mortgages on properties built by Barratt, Bellway, Bovis, Persimmon, Redrow and Taylor Wimpey at just 4.99% fixed rate for 2 years and 5.89% fixed rate for 4 years;
  • Nationwide who will offer 95% Loan-to-Value mortgages on properties built by Barratt, Bovis, Bellway, Persimmon, Redrow and Taylor Wimpey at just 5.69% fixed rate for 3 years and 5.99% fixed rate for 5 years; and
  • NatWest who will offer 95% Loan-to-Value mortgages on properties built by Barratt, Bellway, Bovis, Linden Homes, Persimmon, Redrow and Taylor Wimpey at just 4.29% fixed rate for 2 years, and 4.99% fixed rate for 5 years.
  • In addition, Crest Nicholson will be joining the scheme imminently.
  • The NewBuy Guarantee will support an estimated 50,000 jobs in construction and related industries by increasing demand for newly-built homes.

    The scheme will also help jumpstart the stalled housing market as people begin to move, ensuring more newly-built and older properties become available to buy.

    Right to Buy

    Mr Shapps also published final details of a revamped Right to Buy, which will significantly increase the discounts for two million social tenants in England.

    For years, the discounts available under Right to Buy have steadily declined, putting the dream of buying a home out of reach for many tenants - fewer than 3,700 sales were made last year compared to a peak of 84,000 less than 10 years ago.

    Ministers have made a key commitment that everyone should have the chance to own their own home, so from April tenants could benefit from a discount of up to £75,000, more than quadrupling the discount cap in London and trebling it in most other parts of the country.

    Mr Shapps said the new Right to Buy would see no reduction in the number of affordable homes, with any additional homes bought under the scheme leading directly to the provision of new affordable homes for rent.

    Councils will be able to sign an agreement with the Government for using the receipts from sales to build new affordable homes in their area. The receipts will only need to meet 30%, mirroring the highly successful funding model used for the Affordable Homes programme.

    Where receipts are not used locally they will be passed to the Greater London Authority and the Homes and Communities Agency, who will re-invest the money in new affordable housing across the country.

    The Prime Minister said:

    Strong families and stable communities are built from good homes. That's why I want us to build more homes and I want more people to have the chance to own their own home.

    We are acting today across the board to make this happen.

    We're re-booting the right to buy scheme to increase discounts for two million tenants in social housing in England.

    And we're delivering on our promise to offer affordable mortgages to buyers who might otherwise not be able to raise the money to buy a newly-built home.

    It's no good hoping people will climb the property ladder if the bottom rung is missing. Affordable properties and available mortgages are vital.

    So we're working with leading house builders and lenders to get the scheme underway.

    It's a vital boost to the housing market, giving people good affordable new homes and backing thousands of jobs in construction in the process.

    This government doesn't just talk about expanding home ownership: we're making it happen.

    Housing Minister Grant Shapps said:

    This Government inherited a housing market in disarray, with millions of hard working people blocked from taking their first step on the housing ladder - their desire to buy a home no longer a dream, but a distant fantasy.

    We want to help everyone achieve their aspirations, and feel the pride of home ownership. So I'm delighted that from today the NewBuy Guarantee will give thousands of prospective buyers the chance to buy a home with a fraction of the deposit normally required.

    We're also scrapping the miserly restrictions on the level of discounts under Right to Buy - great news for thousands of tenants who have done well for themselves and want to buy the home they live in.

    But we are determined to maintain the number of affordable homes for rent - so for the first time, homes that are sold will be replaced by a new affordable homes, helping councils meet housing need and getting the nation building again.

    Home Builders Federation Executive Chairman Stewart Baseley said:

    NewBuy will help thousands of people to meet their aspirations to buy a new home, freeing up the housing market and helping first time buyers and those unable to take the next step on the ladder.

    The scheme will also provide a vital kick-start for the house builders large and small who will be able to build the homes and create the jobs that the country desperately needs. The government deserves credit for backing NewBuy and enabling it to become a reality; it shows that housing is in its rightful place at the top of the political agenda.

    CML director general Paul Smee commented:

    We are delighted that three lenders are today launching mortgages under NewBuy, and that more are set to follow. These mortgages will help creditworthy borrowers who simply haven't yet managed to build up a large enough deposit to gain access to finance to buy a newly built home. NewBuy is good news for home-buyers, and potentially good news for jobs and the wider economy too. Borrowers need to understand the implications of high loan-to-value borrowing, so we are pleased to support the initiative with clear consumer information to help people decide whether NewBuy borrowing is an attractive option for them.

    Further information : NewBuy Guarantee Scheme

    1. An estimated one million people, including 380,000 aspiring first time buyers, can afford mortgage repayments but are currently excluded from the housing market because they do not have a large enough deposit.
    2. The NewBuy Guarantee Scheme is intended to boost housing supply and deliver a significant increase in access to affordable mortgages for those who can afford mortgage repayments but do not have large savings. Final details of the scheme were published today and can be found at:
      www.communities.gov.uk/housing/homeownership/newbuy/
    3. A recent survey by Rightmove found that 28% of first-time buyers feel they will be more likely to buy once the NewBuy scheme launches; and that 24% of first-time sellers feel that they will be more likely to buy.
    4. 28,000 home buyers have registered their interest in NewBuy with builders.
    5. The Government has supported the Home Builders' Federation and the Council of Mortgage Lenders in their development of the NewBuy scheme, which will be administered by Jardine Lloyd Thompson Group plc. All lenders and builders operating in England can now participate in the scheme, and will be responsible for forming their own commercial arrangements. More details can be found at:
      www.hbf.co.uk/
    6. Home buyers can buy new build properties constructed by a participating builder using NewBuy. A leaflet for interested buyers can be found at:
      www.cml.org.uk/cml/consumers/newbuy
      More details can also be found at: www.NewBuy.org.uk
    7. 130 builders have registered an interest in participating in NewBuy with the Home Builders Federation. Of these, 76 are not members of the Home Builders Federation and will be accessing the scheme on a level playing field.
    8. More lenders are keenly interested in NewBuy and plan to participate over the coming weeks and months. Halifax is working with 16 builders and will be launching a range of products specifically designed for the scheme in April. Santander is in the final stages of agreeing partnerships with selected developers and will start to offer its first NewBuy mortgages via intermediaries with established ties to these house builders by the middle of the year.
    9. Lenders will still assess potential borrowers according to the usual underwriting and risk criteria. However, because of reduced risk profiles, lenders will be able to lend at a higher loan to value ratio than usual, meaning that potential home buyers need a smaller deposit. The following eligibility criteria will also apply:
    10. The price of the property must be less than £500,000
    11. Homes bought through NewBuy must be a standard purchase - not shared equity or shared ownership
    12. The property being purchased must be the applicants' main home - not a second home or a buy to let investment
    13. The applicants must be UK citizens, or have indefinite leave to remain in the UK
    1. Under the NewBuy scheme house builders will put 3.5% of the sale price into an indemnity fund for each property sold, and the Government will provide additional security for the mortgage loan in the form of a 5.5% guarantee. In the event of repossession, the lender will be able to recover any losses to the maximum covered by the borrower's deposit and the home builder's fund, and then call on the Government guarantee. If no claim is made builders can recover their contributions after 7 years.

    Further Information : Right to Buy

    1. Ministers have today published final details of the Right to Buy scheme, following a consultation. A copy can be found at:
      www.communities.gov.uk/housing/homeownership/righttobuy/
    2. Most Right to Buy discounts are currently limited by caps. These range from £16,000 in most parts of London to £38,000 in parts of the South East (full details in table below). From April, subject to parliamentary approval, tenants could benefit from a discount of up to £75,000, more than quadrupling the discount cap in London and trebling it in most other parts of the country.
    3. Maximum Discount Limits under the current Right to Buy scheme

      South East : £38,000 (unless home is in the local authority areas of Chiltern, Epsom & Ewell, Hart, Oxford, Reading, Reigate & Banstead, Tonbridge & Malling, Vale of the White Horse and West Berkshire where the maximum discount is £16,000)

      Eastern : £34,000 (unless home is in Watford where the maximum discount is £16,000)

      South West : £30,000

      North West, West Midlands : £26,000

      Yorkshire and the Humber, East Midlands : £24,000

      North East : £22,000

      London : £16,000 (unless home is in Barking and Dagenham or Havering where the maximum discount is £38,000)

    4. Tenants must have been public sector tenants for 5 years before they can qualify to purchase their home through Right to Buy.
    5. The replacement of additional homes bought through Right to Buy will be funded using the same highly successful model as the Affordable Homes programme. Under this approach social landlords can meet the costs of new homes from borrowing against the future rental income, contributing from their own resources, including land, and grant funding from the Government. For the Right to Buy replacement scheme, receipts will substitute for grant funding for up to 30% of total costs.

    Government tables show Slough's average home price to be £195,000.
    The 5% deposit is therefore £9,750.

    More information is available on the government's Communities web site at communities.gov.uk/housing/housingresearch/housingstatistics/housingstatisticsby/socialhousingsales/notesdefinitions/