Phil Whitehouse: Blog
Wednesday 11th April 2012
The word on everyone’s lips at the moment is NewBuy. Three main lenders have so far thrown their hats into the ring to support the new Government scheme.
Welcomed by the major house builders, it is hoped that NewBuy will stimulate the housing market and offer a means for first-time buyers to get on to the property ladder.
Some industry commentators quite rightly point out the need for caution with high loan to value lending, alerting everyone to remember that such schemes can be an artificial stimulus to the market that do not generally work in the long term.
Some give the example of Stamp Duty holidays to encourage a rush in the market whilst the scheme is available, only for a lull after the scheme is withdrawn.
Also, looking at it from an intermediary’s point of view, the scheme is unlikely to help the individuals conduct new business, as builders and lenders will be dealing with limited intermediary panels.
The counter argument is that the Government’s initiative will at least start activity in some areas of the UK and in fact may help around 100,000 people buy their first home.
Clearly the NewBuy scheme isn’t enough to kick-start the whole market and solve all the wrongs of the past few years, but at least it is a step in the right direction. It may also help the wider economy, as any new activity will undoubtedly have a knock-on effect for all parties in the supply chain.
On balance, there are more ways than one to look at this, and as long as the Government keeps a tight watch on the scheme, the funding and various parties involved, then it may be a suitable use of public money: only time will tell.
On a wider note it is one thing being able to put down a smaller deposit than usual under this scheme, but the biggest issue is the ongoing affordability of the mortgage repayments for the term of the mortgage.
With interest rates on the NewBuy scheme being currently slightly higher than say 90% LTV rates for customers purchasing second-hand property, the servicing of the loans going forward may cause some borrowers an issue after the fixed-rate period ends. So no one should be encouraged to go into this scheme or of course house purchase generally without full consideration of all current and future cost implications.
This is where a good mortgage intermediary can really add value to their clients by offering holistic advise about the scheme’s concept rather than just on the immediate mortgage transaction.
As with any new scheme, it is important to understand the complexities before introducing to a client.
A mortgage club can help intermediaries understand this market by opening doors with lenders, both in a training and awareness capacity, and by negotiating products and services that ordinarily may not be available to the broker as an individual.
* Phil Whitehouse is head of The Mortgage Alliance
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