Exclusive: Prime minister’s flagship mortgage scheme stalls

The government is involved in last ditch talks with banks and housebuilders to rescue the roll-out of its flagship 100,000-home NewBuy mortgage guarantee following increasing reluctance from lenders to back the scheme.

According to a letter written by the Home Builders’ Federation executive chair Stewart Baseley to members, seen by Building, “HM Treasury and other senior government officials will make urgent contact with the lenders” to get them “to implement NewBuy as a matter of priority”.

The mortgage scheme, designed to offer 95% mortgages backed by a £1bn government guarantee to buyers of new build properties, was launched with fanfare by prime minister David Cameron on 12 March.

At the time the prime minister said the government was “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”. “This government doesn’t just talk about expanding home ownership: we’re making it happen,” he added.

Builders involved in the scheme estimated it could raise new home sales by up to 15%.

But just three lenders and seven housebuilders were involved in the scheme at launch, with the promise more would be able to take advantage of the government backing in the coming weeks. The two biggest lenders, Lloyds and Santander, have not yet joined.

In his letter to members (attached opposite), Baseley said that the NewBuy process “has not evolved as anticipated” with “very few” lenders having so far contacted builders to initiate NewBuy deals.

Under the scheme, housebuilders have to set up a fund or “cell” with a lender before they can offer the 95% mortgages on their homes. As these have a minimum size, smaller builders have to join together to form so-called multi-user cells (MUCs) before they can offer the mortgages.

Baseley’s letter said that the formation of MUCs in particular had been hit by the delay, adding to fears smaller housebuilders would continue to miss out.

“Only Nationwide is close to establishing a MUC, and [it has] understandable concerns about being the only MUC available,” he said.

He added that lenders were “still deliberating about the rules for entry into their MUCs, and what approval processes they will have, despite these being discussed extensively and, we believe, agreed with all parties.”

Nationwide head of mortgage strategy and policy Andrew Baddeley-Chappell denied the lender was worried about being the only MUC available.

But he said the technical difficulties of bringing small and medium sized builders into the NewBuy scheme was causing delays. “The process is going to take a bit of time,” he said.

The HBF and Council of Mortgage Lenders (CML) are now asking individual lenders to accept changes to the rules in order that more deals are signed, and were set to review the situation with government on Thursday (29 March).

Chris Brown, chief executive of developer Igloo, said: “At the moment the situation is maximising the damage to smaller builders as half a dozen firms are mopping up the whole first-time buyer market.”

A CML spokesperson said: “We recognise that a number of builders are keen to participate as soon as possible, and we are confident that the range of participants will grow substantially over the coming weeks and months.”

A Department for Communities & Local Government spokesperson said: “We are all working together to quickly expand the NewBuy Guarantee.

“There is real appetite from everyone to make this innovative and ambitious scheme a success, with lenders working as quickly as possible. We remain committed to ensuring that all interested builders get selling through the scheme as soon as possible.”

A spokesperson for the HBF said the letter was a private communication to lenders: “There are no deal-breakers here and we’re doing everything we can to speed the process up.”