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One month into the UK Government’s new home buyer scheme it has to be said there has been a mixed reaction. The scheme itself enables 1st time buyers to purchase a new home with a 95% deposit whilst both the house builder and the government put an additional 9% into an indemnity pot to reduce the overall risk to the mortgage lender. The reaction has been mixed, in spite of a reasonable level of interest from 1st time buyers, the banks offering the scheme (so far NatWest, Barclays, Nationwide and Halifax) have set interest rates so high (5.99 per cent and 6.39 per cent for two year deals) they would appear to be actively discouraging uptake in the scheme. Indeed, judging by the very low numbers of people who have used this route to purchase their first home this discouragement is working very successfully. In fact, it could have been argued that by essentially spinning a 5% deposit to a 14% one, first time buyers should have been entitled to lower interest rates more in keeping with the higher loan to value rates. So whilst this initiative seems to be a reasonable idea at first, encouraging more people to purchase new homes and making first time buyers with low deposits more attractive to lenders, in reality the higher interest rates offered by the participating lenders will act as a significant deterrent. As an alternative, providing an extension of the stamp duty holiday but limiting it to new housing purchases might have been a more compelling answer to the problem; however it still wouldn’t address the key issue of finding that first deposit. It could also be said that in these fiscally austere times the UK Government is unlikely to want to lose the significant volume of revenue that this stamp duty would have otherwise provided. At a time when the UK has entered a double dip recession, predominantly blamed on the construction sector; it is clear that more needs to be done to encourage prospective buyers from all rungs of the ladder to purchase new homes. Helping fist time buyers is certainly a good step in the right direction, however until a more suitable arrangement can be negotiated to encourage more lending at better rates this problem is unlikely to be resolved in the immediate future. The more cynical might suggest that the problem could be eased by developing a new scheme to encourage buy-to-let investors to purchase new housing stock through preferential rates or tax initiatives, whereby those who would be first time buyers can now rent the same house for cheaper, but that probably doesn’t bear thinking about.
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