The Government’s flagship policy to kick-start the housing market is on the rocks just two months after it was launched.
Building executives are already casting doubt over whether the NewBuy mortgage guarantee scheme will succeed.
And the men in hard hats are pointing the finger at the banks for pricing buyers out of the market with excessive mortgage rates.
NewBuy aims to help buyers onto the housing ladder by allowing them to purchase a new home with just a 5 per cent deposit because the housebuilder and the Government underwrite the loan.
David Cameron hailed it as ‘a vital boost to the housing market, giving people good affordable new homes and backing thousands of jobs in construction’.
Stewart Baseley, executive chairman of Home Builders Federation, was similarly upbeat at the time of the launch.
‘It will be a huge boost to house building,’ he said. ‘Since 2007, the biggest constraint on homes being built has been mortgage availability. This scheme will see more desperately needed homes being built, create jobs and give the economy the boost it needs.
More... Housebuilding boss warns soaring loan rates are threatening first-time buyer scheme‘If it can deliver 100,000 sales over the next few years it could be a real game changer.’
But since then the banks involved have quietly hiked mortgage rates.
‘Disappointing’ was the verdict of Steve Morgan, the boss of Redrow.
‘These interest rates are not helping,’ he said. ‘They are not helping the builders, they are not helping the buyers and they are not helping the economy.’
This will worry Downing Street. Housebuilding played a major part in the recovery from the Great Depression in the 1930s.
And the worst performing sector of the economy in the first quarter of this year – when Britain returned to recession – was construction.
It is no surprise therefore that the Chancellor is keen to get Britain building – particularly given the chronic shortage of housing in the UK.
Building peaked at more than 350,000 homes in 1968 and more than 200,000 homes were built in 1988. But this was down to less than 150,000 in 2008 as the Great Panic triggered the Great Recession. Just 103,000 homes were built in 2010 and 110,000 last year.
Mike Farley, chief executive of Persimmon, believes the scheme can work – but only if the banks drop their rates.
‘There’s nothing wrong with the concept but to make it work we need a lower rate or people will be priced out,’ he said. ‘The rates are so high people won’t be able to afford the repayments and that will put the brakes on.’
Rate hikes hit 'NewBuy' mortgage dealsNatWest offered the best initial rate when the scheme was launched on March 12. This was 4.29 per cent for a two-year fixed-rate and 4.99 per cent for a five-year fixed rate.
But its new two-year deal is 4.79 per cent and the five-year deal is 5.49 per cent. Woolwich has raised the rate on its NewBuy mortgage from 4.99 per cent for two years to 6.09 per cent on the three-year fix.
Pete Redfern, chief executive at Taylor Wimpey, reckons the hike in rates has hit demand.
‘The scheme itself has got off the ground in a positive way,’ he says. ‘The initial interest among customers is good. The scheme in principle can do the job. But the interest rates are not priced competitively.
‘It is very difficult to know if it will work. If rates stay at these levels it will reduce the impact significantly. But that doesn’t mean it won’t be effective at all.
‘What we hope happens is that this is just about lenders trying to find the right level. Individual lenders are nervous that if their rates are too low they will take market share and that will distort their mortgage book.
‘They don’t want that. It is not the end of the story but it is unfortunate and I hope it doesn’t knock the train off its rails.’
Analyst Alastair Stewart, of City broker Canaccord Genuity, always had doubts, publishing a report before the scheme was launched titled ‘The MiG won’t fly’. His view has not changed in recent weeks.
‘It appears that the scheme simply hasn’t got off the ground,’ he said. ‘There has been very limited appetite from day one on the part of the lenders.’
Critics of the builders argue that house prices are too high – particularly as new-build properties, like cars, lose their value quickly.
They also point out that mortgage rates of around 6 per cent are low by historical standards.
But analysts remain convinced that the key to the scheme’s success lies with the banks.
Charlie Campbell of Liberum Capital said: ‘Take-up has so far been slow, as the mortgage rates offered have not been that generous, and credit scoring has been quite strict.
‘However, we remain of the view that the scheme will be successful. The scheme is the Government’s only stimulus plan, and with GDP weak in Q1 and polls going against it, we would expect the Government to nudge banks into embracing the scheme with more enthusiasm.’