Blackfriar: NewBuy homes scheme is bringing up same old themes

So far, just one person has bought a house through NewBuy.

In recent days housebuilders Persimmon and Redrow have stuck the boot into the month-old Government scheme, which was meant to give a boost to housebuilding and the economy.

In essence, NewBuy aims to encourage risk-averse banks to lend up to 95 per cent of the value of a property to new buyers and home movers.

Housebuilders and the Government pay a total nine per cent of the property’s value into an indemnity pot to reduce this risk. If a home is repossessed, the lender can first call on the buyer’s deposit, before dipping into the indemnity pot – effectively giving banks and building societies a deposit cushion of at least 14 per cent.

“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,” said Prime Minister David Cameron last month.

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

But for the four lenders who have so far backed NewBuy – NatWest, Barclays, Nationwide and Halifax – “affordable” is a subjective term.

Halifax, owned by Lloyds Banking Group, last week launched its NewBuy products – two-year deals priced at 5.99 per cent and 6.39 per cent.

Other NewBuy deals are similarly around the six per cent mark, emphasising the growing gulf between the real cost of borrowing for households and the Bank of England’s record low base rate.

York-based Persimmon said it’s seen an encouraging surge in interest as a result of NewBuy, albeit viewers have yet to turn into buyers.

“We had expected more competitive rates on the product and that’s really constraining it to a degree at the present time,” said Persimmon’s Northern CEO and managing director Jeff Fairburn.

Halifax retorts that its products are “priced in line with the market”. Meanwhile, Housing Minister Grant Shapps insists more builders and lenders are poised to join up. His department, Communities and Local Government, is particularly evasive when it comes to questions about the high rates.

But Robin Hardy, analyst at Peel Hunt stockbrokers, reckons there’s real reluctance among housebuilders to embrace NewBuy, hence the high rates.

“The NewBuy indemnified mortgage is failing to ignite, with lenders clearly pricing the product high to deter interest,” he said. “Halifax has now joined the scheme but... like others, it does not look keen to participate.”

One lender told Blackfriar he and others are wary about becoming over-exposed to new-build developments, hence he’s staying away from NewBuy.

“The problem is it’s very fixed to a particular property development,” he said.

“If you’ve got 20 of these, if that fails you’ve got quite a lot of exposure.

“There’s been a strong history of flats that started life as premium price executive developments. As soon as it goes wrong the good tenants leave and it goes into a death spiral.”

Then there’s the fact that NewBuy is exclusively for new homes – which can drop in value as soon as the buyer moves in.

“Not everybody wants a new house, especially if they’re a first-time buyer,” said the banker.

Thirdly, lenders are wary about anything which puts them in bed with Government.

We’ve been here before: FirstBuy, HomeBuy Direct and the stamp duty holiday all tried to boost the housing sector, but ultimately were not enough.

But NewBuy, or whatever name is given to the next housing boost scheme, really matters. Britain is not building enough homes to meet its growing population.

Just 1,390 homes were started in Yorkshire in the final three months of 2011. Rewind to the same period in 2005, and work started on 3,570 homes.

Nationally, the picture is only slightly better. Some 25,240 homes were started in the October to December quarter of 2011, up six per cent on the previous six months.

But compared with the fourth quarter of 2005, housing starts are still 48 per cent down.

Blackfriar believes Government can do even more to help the housing market. Expanding the indemnity scheme to include second-hand homes, not just new ones, could be a catalyst for growth.

Even a return to mortgage interest relief at source, or MIRAS, could get the wheels of the housing market turning again.

The scheme, first launched in 1969, could be re-launched to allow first-time buyers tax relief in return for buying a home, or help homeowners in negative equity.

Yesterday’s shock three per cent quarter-on-quarter drop in construction output, which knocked 0.2 percentage points off GDP, must be a wake-up call.

Britain needs to get building.

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