Help for First Time Buyers
NewBuy Government Mortgage Indemnity Scheme
Aspiring home-owners thinking of buying a new-build home, but don't have enough of a deposit to qualify for a standard mortgage, may be able to secure a mortgage under the Government's NewBuy scheme. However, you will still need to have a deposit of at least 5 per cent of the price of the property.
Unfortunately this scheme is only available in England and not the rest of the UK
How to go about it
Anyone who is interested in the scheme and has a house-hold income of under £60,000 pa should either visit local building developments to see what they have on offer or contact a mortgage advisor who will be able to let them know about schemes in the area .If you meet the mortgage lender's criteria and they deem you to be a good risk to lend to, as they would do in any case, you will be allowed a mortgage loan up to 95 per cent of the purchase price.
What is an indemnity?
This scheme will make it less risky for lenders to lend to first time buyers as the risk is shared with the government and the house-builder. As such, more aspiring first time buyers will be able to secure their first mortgage. A mortgage indemnity guarantee will protect the mortgage lender in the event of the borrower not being able to make the monthly mortgage payment when the lender would have to take repossession of the property and sell it.This would mean a big financial loss to the mortgage lender, particularly if the value of the property has fallen. With this scheme, the builder sets aside a sum of money equal to a portion of the sale price into a separate 'indemnity' fund. When this fund is all gone, the Government will provide another guarantee to an agreed-to level.
When the home is repossessed and sold for less than the amount of the mortgage loan left to be paid, the mortgage lender can make a claim on the mortgage indemnity fund to claw back some of its financial loses. The security for the mortgage is the property in question. The mortgage indemnity is a form of extra security or guarantee for the lender.
The Government states: 'In the event of a home being repossessed, the borrower will still be responsible for repaying any shortfall between the sale price of the property and the outstanding mortgage debt.' This is no different from any normal mortgage borrower/lending scenario.
NewBuy eligibility criteria:
The Properties must be:
- Newly built, residential, being sold for the first time
- Priced up to £500k
- Not part of a shared ownership or shared equity scheme
- For primary residence use only
The first time buyer will have to be:
- UK citizens and those with a right to remain indefinitely in the country.
This scheme is not available in conjunction with any other Government scheme or on interest-only mortgages.
The Government states: 'The existence of the indemnity does not provide any additional protection for the borrower nor protection from repossession. It does not cover the borrower against negative equity or a shortfall between the sale price and the outstanding debt.'
For mortgage advice and to see what schemes there are in your area, contact our mortgage advisors.