Dromey calls on ministers to extend 95% mortgages beyond new builds

Published by Julien Tremblin for 24dash.com in Housing

Shadow housing minister Jack Dromey has welcomed the Government's mortgage indemnity scheme but is calling on ministers to extend it beyond the new build market.

The Government's NewBuy scheme allows aspiring homeowners to take a mortgage on 95% of the value of their home - reducing the deposit for an average house from £40,000 to just £10,000.

A maximum of 100,000 homebuyers will be able to benefit from the scheme available on new build flats and houses in England up to a maximum value of £500,000.

Talking to Money Marketing ahead of the Budget, Mr Dromey has called on the Government to extend the scheme beyond the 10% of the mortgage market made up of new build transactions.

He told the paper: “The scheme is at least something from a Government doing virtually nothing to solve the largest housing crisis in a generation. Ministers should now look at extending the scheme because new build properties are only a small part of the market.”

Responding to criticism that new-build homes instantly lose value when they are moved into - hence creating a risk of negative equity among those purchasing them - Mr Dromey said there is a risk but that "it will not be true in all cases".

"Having said that, borrowers need to be careful and lenders need to be responsible so we do not return to the dark days of widespread negative equity," he said.

Under NewBuy, the housebuilder will pay 3.5% of the sale price into a special account which will be held by the lender for seven years. The Government will also provide additional guarantees of 5.5% - to be used only in case of a major property crash. 

Launched last week, the scheme came under criticism from smaller house builders who say NewBuy is privileging large developers and is currently unfair to SMEs.