Barratt Redrow and Persimmon launch new 5% deposit equity loan product

Redrow and Persimmon have announced a new equity loan product to allow buyers to purchase homes with a 5% deposit, in a bid to boost demand.

The pair, which have a combined annual housing turnover of nearly £7bn, have launched the Rezide Equity Loan, billing it as a “privately funded replacement for Help to Buy”. The product has been developed with real estate asset manager QSix and lender Ahauz, backed by Barclays and TSB.

Under the scheme, buyers of Barratt and Persimmon homes put down a 5% equity deposit and then take out a Rezide equity loan to cover 15% of the property’s value. This loan will have a fixed interest rate of 4% and can be repaid without early repayment charges. The remaining 80% will be financed through a Barclays or TSB mortgage. The repayment of the equity loan becomes due upon sale of the property, or the maturity date of the main mortgage.

The housebuilders believe the 5% deposit and the 4% fixed rate – which they say compares favourably to the 8%+ rate buyers would pay to borrow the same 15% slice from a traditional high-LTV mortgage” – will give an affordability boost for households.

Adrian MacDiarmid, head of mortgages at Barratt Redrow commented: “Affordability remains a big challenge for many people – not just first-time buyers but also growing families looking to trade up or people wanting a smaller home coming out of a relationship.

“Since Help to Buy ended many people have felt home ownership is beyond them. This is why we have worked across the industry to design a mortgage for people to buy a new build property with just a 5% deposit – helping make the home ownership dream a reality for them.”

>>See also: Help to Buy: It’s the end of an era

Edward McCoy, group sales director at Persimmon, said: “Persimmon is always looking for new ways to improve customers’ opportunities to buy a home. We therefore welcome the launch of the new Rezide Equity Loan scheme, as it will add another useful product that enhances affordability. We look forward to welcoming many new homeowners through this innovative new product.”

The government’s Help to Buy scheme closed completely on 31 March 2023. It was a 5% deposit scheme, with government providing an equity loan covering 20% of the property’s value and 40% in London.

The Home Builders Federation last year called called on the government to replace the ‘void’ left by the scheme’s closure by launching a targeted equity loan scheme supported by developer contributions that would enable buyers to access affordable mortgages with only 5% deposits.

HBF said Help to Buy will have generated £2bn in profit for the government once all loans are repaid along with accrued interest. However critics said the scheme artificially pushed up prices and was not targeted sufficiently at those facing mortgage availability problems.