The missing Mig
Another year, another wonderful Government scheme launched to support the housing market. In 2008, the previous Government launched its “mortgage rescue scheme”. This £240m scheme aimed to stop borrowers being evicted from their homes. Figures earlier this year showed that just 2,600 households have been helped by this scheme - significantly less than the 6,000 the Government said it would help when launching the scheme.
But even this looks like a fantastic success compared with the homeowner mortgage support scheme which allowed monthly mortgage repayments to be cut for up to two years if they had lost their income because they had been made redundant or faced reduced hours, for example. It finished in April, having helped just 63 homeowners.
The Government is currently running a scheme called First Buy, which, by the time it closes next year, should have helped between 10,000 and 12,000 first-time buyers get a mortgage.
The new scheme, which does not have a name, is part of the grandly titled Get Britain Building initiative. The other parts of the initiative involve an increase in subsidy to developers under the Afforable Homes Programme, a change to rules so money from sales of council houses will go towards building new council homes and increased subsidies for councils that take over neglected homes.
Lenders seemed happy to lend on newbuild property during the boom. Lenders such as HBOS had significant interests in property developers so it was not surprising that its support of the new build market knew no bounds. The only restriction seemed to arise when it realised each of its five brands was lending heavily on the same developments, meaning its site exposure was huge. Newbuild losses, especially buy to let on city centre flats, has made up a big portion of lenders’ overall mortgage losses so they have been cautious of late in their newbuild lending, with LTVs heavily restricted.
The Government’s new Mig scheme will mean the property developers put aside 3.5 per cent of the value of each newbuild property sold under the scheme into an indemnity fund and the Government will contribute an additional 5.5 per cent of the property’s value. It is my understanding that 3.5 per cent of the value of the property should be enough to pay for a Mig scheme for the borrowing above 75 per cent so I am not sure why the Government even needs to contribute at all.
Sadly, the majority of first-time buyers do not buy a newbuild. I am sure the scheme will now mean there is plenty of choice of lenders offering 95 per cent loans on newbuild and this should put the rates down. This will push some borrowers into buying a newbuild even if that was not their first choice. No doubt, developers will be rubbing their hands.
In my view the Government has missed a trick by not launching its own Mig scheme for secondhand property. It could pay something towards the cost of a Mig and borrowers could pay the balance, either up front or preferably by capitalising it on to the loan. Lenders seemed happy to lend with Mig schemes a decade ago so why can’t they do so now?
Jonathan Cornell is head of communications at First Action Finance