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Budget 13: Osborne unveils £130bn MIG scheme and £3.5bn of shared equity loans

Chancellor George Osborne has revealed Government plans to launch a £130bn mortgage guarantee scheme and inject £3.5bn into shared equity loans under plans he called “Help to Buy”.

George-Osborne-Budget-Box-2013-Troika-480.jpg

Giving his annual Budget speech today, the chancellor announced the new Government-backed mortgage guarantee scheme will allow all homeowners with a small deposit to access loans backed by the Government.

The scheme is similar to NewBuy, except it is not limited to new-build properties. It will launch at the beginning of 2014 and will run for three years.

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. (See bottom of article for an infographic of how the scheme works).

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.

The chancellor also announced the Government will commit £3.5bn 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.

Home Builders Federation executive chairman Stewart Baseley says: “A lack of affordable mortgage availability remains the biggest constraint on housing supply, something Government now clearly understands and is looking to address. Extending NewBuy to the second hand market should create churn in the market place and drive up sales across the Board – including for new homes. We do though need to ensure a level playing field across the whole market.  Extending FirstBuy is very welcome and will provide a real option for people currently unable to buy – so providing a vital market for the new homes industry. Building the homes the country desperately needs can be a key driver of economic activity. Government must be praised for its attempts to stimulate activity, but must also be wary to get the details right.”  

Below are two diagrams from the Treasury detailing how the new MIG scheme will work:

MIGinfographic2

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  • Grey Haired Underwriter 22nd March 2013 at 3:38 pm

    To Anon @3.13. I don’t quite see how the Government scheme will help anyone to staircase on a shared ownership case. The Housing Association model lease provides an effective indemnity to the lender and there is probably a slight misunderstanding as to the relationship between the freehold title and the leasehold interest held by the borrower.

    In reality this scheme is long on sound bite and slightly short on substance. The Governement haven’t actually quoted any premium rates (this indemnity isn’t free) nor have they indicated how the risk is distributed. I suspect that the risk may be n 80/20 split in which case the lender still takes 20% of the loss on any sale in possession and this is still not terrribly attractive. Whereas if the State is sensible it will accumulate the premia and establish a tidy pot of money to pay out any claims. Doesn’t mean that the scheme is risk free but it might not be as risky as some think.

    I’m not entirely sure, however, that the State really has the expertise to diversify into insurance business. Hope they have the appropriate approvals from the FSA!

  • ADD 21st March 2013 at 1:07 pm

    Some good points if lenders price correctly for all factors. In addition the Government must not interfere in the running of arrears cases, which should be handled in exactly the same way as any other without preference or prejudice.

    One final issue, once started these schemes will be extremely difficult to stop without catostrophic market impact. I am old enough to remember the withdrawal of joint MIRAs and the mess that caused in the 1980’s.

  • Keith 21st March 2013 at 5:58 am

    I wonder whether the government can pursue the defaulting borrower for any losses incurred as a lender or MIG insurer can?
    On the subject of shared equity let’s hope house prices move in the right direction and don’t add further to the National Debt.

  • Keith Hickman 21st March 2013 at 5:57 am

    I wonder whether the government can pursue the defaulting borrower for any losses incurred as a lender or MIG insurer can?
    On the subject of shared equity let’s hope house prices move in the right direction and don’t add further to the National Debt.

  • AJK 20th March 2013 at 9:08 pm

    About time higher LTVs were considered. Lets hope regulator doesn’t put their oar in!

  • Graham 20th March 2013 at 3:13 pm

    Good news thuis will be a good help.
    We need to have lenders on this scheme who will assist the borrowers to “stair case” out of the equity loan. Of the main supports of the current Shared Equity loans only one of the lenders will help with further advance or remortgage and leave a reduced equity loan in place. Some wont help at all and other lenders wont lend if interect is payable within 3 years on the Equity loan! All this does is cause the borrowers to be trapped in the wrong home and no way out!

  • john 20th March 2013 at 2:39 pm

    not bad, just 4.5 years too late