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Housebuilders enter lending market

Restrictions on mortgage finance are forcing housebuilders into the lending markets as they seek to attract first-time buyers.

Barratt homes last week launched a product in partnership with Hitachi Capital that will see the company offer unsecured personal loans of up to £50,000 to parents looking to help their children get on the property ladder.

The firm believes it will open the market to young people with deposits of around 5 per cent and parents willing to top that up with a loan in their own name.

The loan will bridge the gap between the small deposit and the 80 per cent mortgages currently available to first time buyers of new-build property.

Barratt chief executive Mark Clare said: “There is no doubt the key issue remains mortgage finance and I don’t see a solution emerging quickly. The industry will have to be innovative and I hope our announcement will be the first step.”

Bovis Homes is in talks with Hitachi Capital with a view to developing a similar product.

Last summer it launched Perfect 10, a mortgage that requires only a 10 per cent deposit, in partnership with Barclays to target first-time buyers struggling to raise the large deposits most lenders require.

But Bovis Homes chief executive David Ritchie said the deal wasn’t proving as attractive as the company hoped.

“It’s been disappointing. The principle is fantastic because the customer gets a good deal but the difficulty is you still need 10 per cent. Looking at our properties - a 10 per cent deposit, transaction costs and fittings - that still amounts to about a £25,000 bill. What is clear is it’s still very difficult for 25 to 35-year-olds to raise that sort of money.”

He said the company would continue to work with Barclays and expected to keep “evolving” the product based on customer feedback.

Both housebuilders acknowledged that action was needed to help maximise sales in this spring, after spending cuts and snow hit last autumn’s selling season.

Mr Clare said: “Given what we have just seen in the autumn it is quite important because we have to be hopeful we will see some recovery. Every selling season is important but we are all reflecting on the fact that last autumn was particularly bad, therefore it is important we deliver those sales in the next season.”

Home Builders Federation spokesman Steve Turner said he expected to see more companies introducing similar lending products in a bid to chase sales.

“Barratt is showing its innovative side but it’s a sad reflection on the lack of availability in the market. I think some of the large housebuilders will be looking to do similar initiatives because first-time buyers are vital and they are currently being barred from the market.”

Panmure Gordon analyst Rachel Waring agreed, saying housebuilder-devised financial products would be a “really crucial development for the market in 2011”.

She said she thought Barratt’s lead was good first step that was aimed at the right people, but with restrictive new lending rules being considered by the Financial Services Authority the new products could struggle to reverse the current trend.

However, Ms Waring said it was a positive sign that the Financial Services Authority had delayed action on lending reform until the summer.

The decision to delay any rule changes follows widespread criticism from politicians and the industry.

Meanwhile new figures from the Council of Mortgage Lenders last week showed no sign of uplift.

The figures show the volume and value of mortgages granted in November remained flat compared with October but were down 15 per cent by volume and 13 per cent by value from November 2009.

 

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