The government is satisfied that its mortgage indemnity guarantee scheme will not distort valuations in the new-build property market, says housing minister Grant Shapps.
Giving evidence to a Communities and Local Government Committee inquiry into the financing of new housing supply yesterday, Shapps said he did not believe builders would add on a premium to properties sold under the scheme to make up for the 3.5% of the value of each home they must put into a MIG funding pot.
Under the scheme, announced in the government’s housing strategy in November, lenders will offer 95% LTV mortgages for new-build properties against a MIG funded jointly by house builders and the government.
Shapps told the committee: “There is always an argument that initiatives like this somehow divert the market from what it was going to do in the first place.
“But we are satisfied that, because this is a competitive housing market, this scheme will not particularly distort the market.”
He added: “Remember that borrowers still require a deposit for this scheme: it is not a 100% mortgage and it is backed by the government and the builders, so we are all in this together and we have to make this work together.”
The housing minister went on to say that there has traditionally been a premium attached to new-build properties, but that this has disappeared in the recession and has not come back.
A number of experts have raised concerns about the impact the scheme would have on valuations, with the Royal Institution of Chartered Surveyors telling Mortgage Strategy in December that properties sold under the scheme could depreciate in value the day after purchase.