Can Cameron's new house plan rebuild the market?

It was launched with great fanfare to help first-time buyers but the Government's £1bn scheme may do more harm than good in such a volatile economy, writes Simon Read, Personal Finance Editor

The flat housing market of recent years has thrown up a generation of first-time buyers who can't afford to clamber on to the property ladder. The government has now revealed its attempt at a solution to this seemingly intractable problem.

The NewBuy Guarantee, the latest government plan to boost the housing market, was yesterday trumpeted by David Cameron as being "a vital boost to the housing market" which will help up to 100,000 first-time buyers.

Shadow housing minister Jack Dromey disagreed, of course. "It's too little too late," he said, conceding "but at least it's something from a Government that has done virtually nothing to tackle the worst housing crisis in a generation."

So is it likely to offer a vital housing boost? Or is the move a desperate measure by a government that has let the property market collapse?

Under the scheme the Government – along with house-builders – will provide security for mortgages taken out on a new-build house or flat. It will allow lenders to offer mortgages on newly-built properties to people with just a 5 per cent deposit. The deal means that instead of a typical buyer requiring a £40,000 deposit for £200,000 property, they will only need £10,000.

Security will be provided by government and developers. The latter will put 3.5 per cent of the purchase price into an indemnity fund for each property sold, while the Government will provide a 5.5 per cent guarantee.

With that security in place lenders, in theory, will be happy to offer 95 per cent loans. They'll do so on the understanding that even if property prices fall and the borrower falls into negative equity and defaults, they will still be able to get their money back.

Lenders already signed up are Barclays, Nationwide and NatWest, although Santander said it is close to agreeing deals with builders. They're keen on the scheme as it will allow them to offer lucrative loans to people they would have otherwise turned down.

Barclays is offering a two-year fixed mortgage at 4.99 per cent. Andy Gray, head of mortgages for Barclays, said: "We believe this will boost housing market confidence and support the flow of new housing, providing positive consequences for the economy."

Nationwide is offering a three-year fixed rate at 5.69 per cent and a five-year deal at 5.99 per cent but only through mortgage advisers. NatWest's fixed deals are two-years at 4.29 per cent or five years at 4.99 per cent.

Builders are keen to see the scheme successful as it will boost their business and allow them to get properties off their books. Stewart Baseley, executive chairman of the Home Builders Federation said: "NewBuy provides a vital kick-start for builders, who will be able to build the homes and create the jobs that the country desperately needs." Builders involved include Barratt, Bellway, Bovis, Linden Homes, Persimmon, Redrow and Taylor Wimpey, with Crest Nicholson joining the scheme soon.

But new-build properties may not prove to be bargains. For starters, they often include a premium on the sale price that can reduce as soon as someone moves in. Taking a 95 per cent mortgage on such homes in the past has proven a financial mistake. Also anyone tempted by the lower rate two-year fixed deals should think carefully, warned Mark Harris, chief executive of mortgage broker SPF Private Clients. He said it's not a good bet in the low interest-rate environment when rates are not expected to rise for a couple of years. "Because borrowers will only have a small deposit, if property prices do fall further, it could be difficult to remortgage again in two years' time when the loan-to-value may have risen above 95 per cent."

There's also the prospect of interest rate rises. While most experts agree the base rate won't climb for at least another 12 months, it will do eventually. When it does, mortgage rates will climb quickly and many first-time buyers – who struggled to afford deals now – could soon find monthly mortgage repayments spiralling out of reach.

Meanwhile, the Government has also polished up the moribund Right-to-Buy, which encourages council tenants to buy their homes. The scheme – launched in 1980 by Margaret Thatcher – had become less attractive over the years, so much so that less than 3,700 sales were made last year, compared to a peak of 84,000 a decade ago.

From April, for council tenants the discount cap will be trebled, and quadrupled in London. The Government claims the move will give up to two million social tenants the opportunity to buy their council home with a discount of up to £75,000.

Housing minister Grant Shapps said: "We want to help everyone feel the pride of home ownership."

But Jack Dromey pointed out: "There are nearly two million families on waiting lists. Every council home sold must be replaced by another one."



Number of first-time buyers in December 2011 (up 7% from November, and 14% from December 2010)


Value of mortgages approved to those buyers, December 2011 (up 10% on November, and 21% on December 2010)


The average loan-to-value ratio of houses in December 2011 (November 2011 80%, December 2010 79%)


Proportion of homes bought below £250,000 stamp duty threshold by first-time buyers in December 2011 (up from 50% in November). Stamp duty concession ends this month.


Year-on-year drop in house prices, from January 2011 to January 2012


Average house price in England and Wales

Vox pop: 'I don't want a mortgage – that's why I rent'

Niamh Murphy, 23, a nurse living in London, is representative of a generation of young people for whom a mortgage – under any circumstances – is not the aspiration that it was for past generations.


Even with the Government's new scheme and lower deposits, the money you would have to pay up front for a mortgage – and for years after – is the thing that puts me off. Also, I still want to travel, I may have to move for work – I don't want to tie myself to one place. We're a more mobile generation. We have more opportunities to work and to travel. That's why we rent. There is a flexibility you would not have with a mortgage. Women in particular are more likely to move for work than they have been before. It is too early in life to settle."

(Also pictured: Niamh's housemate Sarah Louise Roche, 25, also a nurse, and their friend Nicole Mulhall, 26, another nurse, who also rents in London.)

Caroline Baker, 24, a nanny from Fulham

It's become the norm for young people to rent together for a few years. I live with friends in London and am happy with that. This new scheme certainly isn't going to make me rush out to get a mortgage, but I think it is a good thing to make it easier for first time buyers at a time like this. Potentially a few years down the line I might make use of a scheme like this, but not yet."

Discover more property articles at Homes and Property
On the last day of campaigning before the polling booths open, the SNP leader has written to voters in a final attempt to convince them to vote for independence
voicesIs a huge gamble on oil keeping the First Minister up at night?
Life and Style

Apple has been hit by complaints about the 1.1GB download

Arts and Entertainment
Pointless host Alexander Armstrong will voice Danger Mouse on CBBC

Much-loved cartoon character returns - without Sir David Jason

Arts and Entertainment
Liam Neeson said he wouldn't

Liam Neeson's Downton dreams

Arts and Entertainment
Pharrell dismissed the controversy surrounding
musicThe singer said 'the last thing I want to do is degrade'
Cesc Fabregas celebrates his first Chelsea goal
footballChelsea vs Schalke match report
Arts and Entertainment
Toby Jones (left) and Mackenzie Crook in BBC4’s new comedy The Detectorists
tvMackenzie Crook's 'Detectorists' makes hobby look 'dysfunctional'
Life and Style

Olympic diver has made his modelling debut for Adidas

Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs General

Network Infrastructure Technical Lead - up to £45k DOE - Surrey

£35000 - £45000 Per Annum Excellent benefits: Clearwater People Solutions Ltd:...

Technical Architect - Surrey - £35k-£45k DOE - Permanent

£35000 - £45000 Per Annum Excellent benefits: Clearwater People Solutions Ltd:...

Year 5 Teacher Plymouth

£23500 - £40000 per annum: Randstad Education Plymouth: Year 5 Primary Teacher...

Year 6 Teachers needed for supply roles

£110 - £130 per day + Competitive rates of pay: Randstad Education Reading: Ye...

Day In a Page

Mystery of the Ground Zero wedding photo

A shot in the dark

Mystery of the wedding photo from Ground Zero
His life, the universe and everything

His life, the universe and everything

New biography sheds light on comic genius of Douglas Adams
Save us from small screen superheroes

Save us from small screen superheroes

Shows like Agents of S.H.I.E.L.D are little more than marketing tools
Reach for the skies

Reach for the skies

From pools to football pitches, rooftop living is looking up
These are the 12 best hotel spas in the UK

12 best hotel spas in the UK

Some hotels go all out on facilities; others stand out for the sheer quality of treatments
These Iranian-controlled Shia militias used to specialise in killing American soldiers. Now they are fighting Isis, backed up by US airstrikes

Widespread fear of Isis is producing strange bedfellows

Iranian-controlled Shia militias that used to kill American soldiers are now fighting Isis, helped by US airstrikes
Topshop goes part Athena poster, part last spring Prada

Topshop goes part Athena poster, part last spring Prada

Shoppers don't come to Topshop for the unique
How to make a Lego masterpiece

How to make a Lego masterpiece

Toy breaks out of the nursery and heads for the gallery
Meet the ‘Endies’ – city dwellers who are too poor to have fun

Meet the ‘Endies’ – city dwellers who are too poor to have fun

Urbanites are cursed with an acronym pointing to Employed but No Disposable Income or Savings
Paisley’s decision to make peace with IRA enemies might remind the Arabs of Sadat

Ian Paisley’s decision to make peace with his IRA enemies

His Save Ulster from Sodomy campaign would surely have been supported by many a Sunni imam
'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

Exclusive extract from Janis Winehouse's poignant new memoir
Is this the role to win Cumberbatch an Oscar?

Is this the role to win Cumberbatch an Oscar?

The Imitation Game, film review
England and Roy Hodgson take a joint step towards redemption in Basel

England and Hodgson take a joint step towards redemption

Welbeck double puts England on the road to Euro 2016
Relatives fight over Vivian Maier’s rare photos

Relatives fight over Vivian Maier’s rare photos

Pictures removed from public view as courts decide ownership
‘Fashion has to be fun. It’s a big business, not a cure for cancer’

‘Fashion has to be fun. It’s a big business, not a cure for cancer’

Donatella Versace at New York Fashion Week