Santander has become the latest lender to join the NewBuy scheme, with a range of mortgages for borrowers with small deposits.

Santander has thrown its hat into the ring to offer mortgages for people who want to buy a new-build property with only a 5% deposit.

The lender has launched three new fixed rate deals that you can choose to repay over three, five or – unusually – seven years. It's the latest in a string of banks and building societies to offer home loans as part of the Government's NewBuy scheme.

Under the scheme, you can buy a home with a deposit of 5-10% on the condition that you buy a new-build property from a list of participating house builders.


What's on offer?
You could choose a three-year fixed-rate deal at 5.49%, which for a property worth an average £160,000 would equate to repayments of around £933 per month with a 5% deposit.

Alternatively, you could choose to fix for a five years, also at 5.49%, or seven years at 5.99%.

All three rates come with a low £99 fee, along with a free home valuation and £250 cashback on completion. The deals are available through brokers that have ties to Barratt Homes, Berkeley, Bovis Homes, or Persimmon.

What is NewBuy?
The NewBuy scheme launched back in March, with the Government and the housebuilder guaranteeing the borrowing.

The builder pays 3.5% of the sale price into a special indemnity fund at the homebuyer's lending bank for seven years. Should the homebuyer have issues paying the mortgage and the property is repossessed, this fund can be used to cover any losses. The Government is also providing a further guarantee of 5.5% which can only be accessed in the event of a major property crash.

Which is the best NewBuy mortgage?

Barclays, NatWest, Halifax and Nationwide also offer NewBuy mortgages with deals lasting between two and five years, and rates ranging from 4.79% to 6.19%. Some mortgages come with a fee for first time buyers and others have a fee-free option (but a higher rate of interest as a result).

Which mortgage is the best for you depends entirely on your circumstances.

However, there are some clear winners when you compare deals like-for-like. For example, Santander's five-year fixed rate deal offers the same rate as NatWest's, at 4.59%. But the latter charges a fee of £499 - £400 more expensive than Santander's fee.

Don't be seduced by rates either; factor in all associated costs. For example, Nationwide's three-year fixed rate deal at 5.79% also comes with a £900 product fee and £99 booking fee.

It's worth noting that lenders hiked their rates not long after the initiative was born in March. For more about this read Why the NewBuy scheme isn't working.

What if you want to move?
When buying a home you need to consider your future too.

If you think you might want to move to a bigger home in a few years' time, perhaps to start a family, then a seven-year mortgage might end up locking you in and hindering a change. Santander's NewBuy deals are portable – so you can take the mortgage with you if you move house, even to a non-NewBuy home – but you could still face difficulties, especially if you want to borrow more money for a bigger home.

What are the snags?
Look out for the portability issue with other lenders too. Unless you think your new-build property is a "forever home", you might find moving both house and mortgage in the future is stressful, unaffordable or simply not possible.

Lenders might also restrict which housebuilders they work alongside, so if you like the look of one of Santander's mortgages but you've got your eye on a Taylor Wimpey home, you will have to sacrifice one or the other. Santander's deals are only available through certain brokers, so you can't apply directly with the bank. You can find a suitable broker by going through the sales office of the housebuilder you want to buy from.

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