Mortgage News Daily – UK to launch mortgage guarantee scheme
Ministers are set to announce a new mortgage guarantee scheme to help buyers on to the housing ladder, an intervention that experts have said is likely to push up house prices.
The scheme, which will be announced as part of Wednesday’s Budget, will allow buyers in England to obtain a mortgage with only 5 per cent of the property’s value to put down as a deposit.
The Treasury will guarantee a portion of the loans on homes worth up to £600,000, encouraging banks and building societies to begin providing riskier, higher loan-to-value mortgages again.
Lenders pulled their riskiest products as the economic outlook deteriorated in the months following the outbreak of the coronavirus pandemic.
The new scheme will be available to existing homeowners as well as first-time buyers, with ministers anticipating that the latter group in particular will make use of high loan-to-value mortgages to get on to the housing ladder.
Number of mortgage deals available for buyers with a 5% deposit at the start of this month, down from 405 a year ago
The prime minister, Boris Johnson, said the scheme would help “generation rent to become generation buy.”
Neal Hudson, an independent market analyst, said the move would push up prices. “This makes an 8 per cent increase much more likely than an 8 per cent fall,” he said
The intervention would give lenders confidence that the government would act to prevent house prices falling, added Hudson.
“If the government is effectively taking a stake in the market, they are not going to want prices to crash. There’s a bit of mixed messaging about who they are trying to help; my suspicion is that they are trying to help the market,” he said.
Bankers warned the government against encouraging irresponsible lending when the prime minister first signalled plans to introduce a new guarantee scheme last October.
Prices and transactions have surged to record levels over the past 12 months, in part thanks to the government’s introduction of a stamp duty holiday in July, which has raised the threshold for paying the tax from £125,000 to £500,000. The holiday had originally been set to end in March, but is set to be extended until June according to a report in the Times.
The new mortgage guarantee scheme will be available from April. A similar scheme in 2013 that ran for four years was used by more than 100,000 buyers.
Ministers also introduced an equity loan scheme in 2013, which has been running ever since. Buyers using that scheme, due to end in 2023, have been able to buy new-build homes with a deposit of as little as 5 per cent.
Dominic Agace, chief executive of Winkworth, the estate agent, said the mortgage guarantee would help first-time buyers re-enter a market that has become dominated by wealthier buyers.
“First-time buyers have been missing out as banks chose to focus on perceived higher quality loans. For a healthy property market, the first rung of the ladder needs to be working and this will ensure that,” he said.
The number of mortgage deals available for buyers with a 5 per cent deposit fell from 405 in February 2020 to just 5 at the start of this month, according to data from Moneyfacts, the comparison website.
However, other deals popular with first-time buyers have started to recover more quickly in recent months after a drop at the start of the pandemic. The number of 90 per cent loan-to-value deals climbed from a trough of 70 last July to 248 this month, though it is still lower than the same time last year.