Exclusive: Lenders cut rates below 5% for government’s NewBuy housing scheme for first-time buyers

Linden Homes

The cost of mortgages under the government’s NewBuy scheme designed to help first-time buyers afford new-build homes has fallen in the past two weeks as mortgage lenders have reduced their rates.

The move from a number of the major lenders to cut their rates will support the government-backed NewBuy initiative intended to encourage mainstream banks to lend to buyers with deposits of only 5%.

It has been criticised by housebuilders for the relatively high interest rates charged by banks using the scheme, which they say discourage potential purchasers and fail to reflect the extra guarantees put behind the loans by the government and housebuilders themselves.

The recent moves have seen falls of up to 50 basis points - half a percentage point - in NewBuy rates at Barclays, Halifax, Natwest, Nationwide and Santander. Santander’s three-year fixed rate NewBuy mortgage came down by 0.5 percentage points to 4.99, joining Natwest below the psychologically important 5% rate.

Launched by prime minister David Cameron, NewBuy was designed to kickstart housebuilding by enabling up to 100,000 extra homes to be built. However, problems over the schemes complexity and the high rates charged by lenders have limited its impact so far.

Peter Redfern, chief executive of Taylor Wimpey, said the changes in rates were an important sign of the NewBuy starting to live up to its potential. “NewBuy is currently accounting for about 10% of our sales, and it is encouraging to see three or four rates going down from between 20 and 50 basis points,” he said.

However, mortgage lenders have reduced a number of rates across the market in recent weeks, and it is not yet clear whether the moves will make NewBuy comparatively better value than pre-existing 95% mortgages.

Stewart Baseley, executive chair of the Home Builders’ Federation, said: “The drop in NewBuy rates is very welcome and we hope that as the Funding for Lending scheme gathers momentum, to see them fall further. Interest in NewBuy is already significant and this will only help.”

The news comes as the Financial Times reports ministers are preparing a package of measures next month to help stimulate the housing market, in a bid to drag the UK out of recession.

The paper said the package, being drawn up by Cabinet Office minister Oliver Letwin, would include a scheme under which the government would relax planning obligations in Section 106 deals for big projects, including requirements to build social and affordable homes.

Yesterday communities secretary Eric Pickles announced plans to send in ‘trouble shooters’ to council to help broker agreements with developers to unpick onerous Section 106 deals.

The Financial Times said the government would in turn underwrite bonds issued by housing associations - reducing their borrowing costs and allowing them to step into the gap left by private house builders.

This move had been expected to be announced last month, alongside the government’s new infrastructure guarantee scheme, but was delayed.