Funding for lending - damp squib or steady grower?
The construction industry collectively reserved judgement on the Government backed NewBuy scheme when it was announced four months ago, preferring to wait and judge it on its merits.
Since the start of the scheme, despite major advertising and PR efforts from those house builders who had signed up to the scheme, the take up has been relatively low (approximately 750). The blame for this has been laid squarely at the feet of lenders.
‘I am disappointed with the level of sales,’ said Cala chief executive Alan Brown. ‘But I would never have expected the price to be what it is. I would have thought it would be closer to 4 per cent than 6 per cent.’
Responding to this criticism, and as a result of the funding for lending scheme implemented by the government and the bank of England, three of the top five mortgage lenders have just dropped their NewBuy rates by between 0.1 and 0.3 per cent.
Steven Lees, Director at SmartNewHomes, comments on lenders cutting rates below 5% for NewBuy products: "Lenders have hit the nail on the head by slashing interest rates on their NewBuy products.
Not only does this Government backed scheme mean that first time buyers can overcome the issue of raising a large deposit, they will also now benefit from reduced monthly payments. This will increase the attractiveness of the scheme to new buyers and open the door to home ownership for many more people.”
Many house builders would like to have seen the rates drop even further, in order to really stimulate the first time buyer market. However, lenders maintain that this has not been possible, although they hope that the funding for lending scheme may enable them to drop the rate further in the future.
Andrew Baddeley-Chappell, head of mortgage strategy and policy at Nationwide, defended the pricing of loans. ‘Clearly builders would like to see prices lower,’ he said. ‘But what I think builders find difficult to understand are the complexities that go into the pricing for lenders.’ He added that the funding for lending scheme could help rates fall further in coming months.
More than 60 per cent of Newbuy reservations so far have come from just three builders - Barratt, Persimmon and Taylor Wimpey. Mark Clare, chief executive of Barratt, said the autumn selling period would be ‘the critical period to assess… the level of support’ for newbuy. Barratt has taken around 150 reservations; Persimmon has made 179; while Taylor Wimpey passed the 200 mark earlier this month.
So… Quick Move Properties thinks the jury is still out! For the scheme to work, we need to see lenders taking full advantage of the funding for lending scheme to reduce their rates and an improvement on the 40% sign up rate from new home builders.
