Chancellor George Osborne last week announced a package of measures that could encourage tens of billions in extra mortgage lending.
The measures, known collectively as Help to Buy, build upon the Government’s existing mortgage indemnity and shared equity schemes, NewBuy and FirstBuy.
Osborne announced the creation of a new £130bn MIG scheme which, unlike NewBuy will be open to borrowers wanting to buy a new-build home or an existing property when it launches in January.
As part of the scheme, the Government will offer a guarantee of up to 15 per cent of the purchase price, with the borrower putting down a deposit of between 5 and 15 per cent.
Lenders will purchase the guarantee from the Government, the price of which will be decided at a later date. However, it will be influenced by the LTV of the mortgage.
The guarantee will last for seven years and lenders will also take a 5 per cent share of net losses above the 80 per cent threshold, to ensure lenders do not lend recklessly. The Treasury says its liability is expected to be no more than £12bn.
Each participating lender will pool the loans they wish to place in the scheme and the Government guarantee will apply to the pool. Lenders will not have to offer a guaranteed mortgage and may choose not to use it, according to the Government.
In February, Mortgage Strategy’s sister title Money Marketing revealed the Treasury had held talks with mortgage lenders and trade bodies to explore how mortgage indemnity guarantees can be used to improve access to 95 per cent loan-to-value mortgages, including offering MIGs on older properties.
However, experts have warned the scheme will not be a success unless lenders are given capital relief against loans made through the scheme. In the Government’s existing MIG scheme, NewBuy, only Barclays has been given capital relief.
An FSA spokeswoman says: “We are in discussions with the Government on issues including capital relief.”
The chancellor also announced a £3.5bn commitment towards shared equity loans over the next three years which is expected to support up to 74,000 more homebuyers. This is an extension of the £500m shared equity scheme FirstBuy, which launched in 2011.
Borrowers must have a 5 per cent deposit to secure a 20 per cent loan from the Government. The loan will be interest-free for five years and will be repayable on sale. To qualify, homes must be worth less than £600,000.
A rate of 1.75 per cent will begin in the sixth year of the loan before rising by RPI plus 1 per cent in every subsequent year.