Will the New Build Indemnity Scheme Work?

For this scheme to work, the lenders will need to be offering better deals than the existing deals 5-6% rates for 95% deals. This initiative can easily be measured over the coming months by two methods, firstly the number of new 95% mortgages versus old ones and secondly an increase in 95% lending versus other LTVs.

According to an article in the Guardian, in June 2009 there were six mortgages, 24 in January 2011 and 31 in June 2011 and, at the time of publishing this article major lenders such as the HSBC and Woolwich didn't even have 95% mortgages to offer.

Finally, the scheme can be measured by its take up rate. Currently 100,000 homes are being built every year with around 500,000 being sold in England. New builds are therefore taking up around 20% of sales. At the moment builders are pretty much selling what they produce, so to create new demand, this will need developers to go back to building the 200,000+ they were doing prior to the credit crunch. 

This initiative may work, but if it does, it could be selling new homes at the expense of existing homeowners who can't ‘move up the chain' without a buyer at the bottom. If house prices fall next year, it will also mean first time buyers persuaded by the scheme to get onto the housing ladder may end up in negative equity, the developer losing money and if the property is repossessed by the bank, the taxpayer will pick up the bill for the loss in equity!

Also read my previous article - Summary of the Government's New Housing Strategy Initiatives

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