The scheme will be led by the Home Builders Federation and Council of Mortgage Lenders.
The new build indemnity scheme will deliver both a significant increase in housing supply, and access to affordable mortgages for those without large savings who wish to purchase a new home.
The scheme will be open to all builders and all lenders operating in England who wish to participate. The scheme will apply to all new build properties, both houses and flats, and will be available to all potential buyers, subject to appropriate underwriting criteria. Mortgages will be available under the scheme from March 2012.
The Government can confirm today that the following major lenders have agreed in principle to participate in the scheme: Barclays, HSBC, Lloyds Banking Group, Nationwide, RBS, Santander and Yorkshire and Clydesdale Banks.
These lenders make up over 80 per cent of mortgage lending in the UK.
The Government can also confirm that over 25 home-builders have agreed in principle to participate in the scheme, including the three largest Barratt, Persimmon and Taylor Wimpey (full list at end).
These house builders provide over 60 per cent of new homes in the UK.
The Government hopes that other lenders and builders will also want to participate in the scheme.
Borrowers will now have access to mortgages of up to 95 per cent loan to value at affordable rates on new build homes from participating builders.
The scheme will be available to all potential buyers, except buy-to-let investors or second home owners.
The process for agreeing these mortgages will be the same as for any other mortgage. From the borrower's perspective, this is a 'normal' mortgage, with no equity loans or second charges.
For each new build property sold under the scheme, the home builder will contribute 3.5 per cent into an indemnity fund, with the Government supporting the fund to a total of 9 per cent of the property value.
The indemnity fund pays out to the lender if a property financed under the scheme is repossessed and there is a shortfall. Builders will take the first loss in the indemnity, with Government only being called upon to pay once the builder's fund has been exhausted.
Lenders and builders will retain the right to decide which builders and lenders they wish to engage with, according to their own commercial judgements.
The Government will establish a delivery group of lenders, builders and Government to meet on a regular basis to monitor the practical implementation of the scheme.
There will be a cap on the value of properties eligible for inclusion in the scheme.
The scheme will be delivered by the Department for Communities and Local Government and will be available in England only.
The Government will conduct an evaluation of the scheme after two years, to ensure that there has been an appropriate and positive effect on the demand and supply of new build properties.
CML director general Paul Smee commented:
"This scheme is good news for home-buyers, developers and indeed the UK economy.
"Lenders will be able to reduce the level of deposit needed by home-buyers in the new build sector, enabling more buyers to buy and so supporting the flow of new housing development, with all its positive consequences for jobs and the economy as a whole."
UK lenders will not be compromising the quality of their lending or increasing their risk of loss through this scheme. It will, however, allow credit-worthy borrowers to obtain higher loan to value mortgages on new build properties, without requiring the level of deposit which has become usual in recent years.
It is also anticipated that lending within the scheme will attract relief on the regulatory capital that would otherwise be required on high loan-to-value lending, because of the significant mitigation of the lending risk.
Paul Broadhead, BSA Head of Mortgage Policy, said:
"We welcome the Government's support for a new build indemnity scheme initiative aimed at helping those with a modest deposit buy their own home.
This joined up thinking from mortgage lenders, builders and the Government is good for borrowers, the housing industry and in turn jobs.
"For the scheme to deliver its full benefits to consumers it is important that lenders of all sizes can participate. We look forward to working with the Government to help ensure this is the case."
