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Barclays first lender to get capital relief on NewBuy

Barclays has confirmed that it has become the first lender to get capital relief on its range of NewBuy products.

Barclays Rain 480

The NewBuy scheme was launched in March last year and currently six lenders – Barclays, Nationwide, Santander, Aldermore, Barclays and NatWest – provide NewBuy products under the Government backed scheme.

The main aim of the scheme was that it would ensure that mortgages of up to 95% can become more widely available on new build homes.

The scheme is funded by developers, and guaranteed by the Government.

Developers put 3.5 per cent of the value of every NewBuy home sold into a collective pot that is used to protect the lender in the event of a default.

The Government has guaranteed the scheme in the event of the pot of funds from home builders not being large enough to cover a lender’s losses.

But it was also hoped that with the Government effectively providing mortgage insurance (also known as a mortgage indemnity guarantee) on the loans generated, that it would enable lenders to gain some form of capital relief and lend a higher proportion of the purchase price without the level of risk that would normally arise.

As a result lenders would not have to hold such high levels of capital as would normally be required on 90-95 per cent lending.

But Barclays has so far been the only one of the six lenders to so far be granted this capital relief.

In its six month review of the scheme in September the CML said that while the scheme had reduced the risk for lenders it hoped the FSA would take a favourable approach to the capital treatment of loans advanced through the scheme.

A spokesman for the CML says: “This is a welcome development, as it suggests that other lenders may be able to achieve the same outcome. 

“Favourable capital treatment of loans advanced under NewBuy will give a welcome boost to the initiative.”

However, with the FSA granting capital relief on a lender-by-lender basis there is no automatic guarantee the other five lenders will also be granted capital relief just because Barclays has got the green light.

Global mortgage insurer Genworth has been pushing over the last couple of the years for the FSA to take a more open approach to these types of indemnity guarantees.

In particular, it points out how successfully mortgage insurance has been used in other countries like Canada.

Genworth Europe’s mortgage insurance’s business development director Patrick Bamford says: “It’s a good step in the right direction which we hope will build confidence in this key part of the market. 

“What would make a big difference, though, is if capital relief is predictable and predetermined where mortgage insurance is in place. 

“Lenders need certainty and clarity on capital relief to encourage them to prudently lend.” 

To read more about mortgage insurance, how it works in Canada and whether the new incoming Bank of England governor, Canadian Mark Carney, might alter the regulator’s stance towards it, check out the main cover story in this week’s issue of Mortgage Strategy.

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