The Government has announced details of its mortgage indemnity scheme to help first-time buyers of newly built properties to borrow up to 95 per cent of the value of their home.
At the CBI conference in London today, the Government is setting out a series of measures aimed at kick-starting the mortgage market.
With banks unwilling to lend to borrowers without sizable deposits, the Government will underwrite a small proportion of some lending on newly-built homes to help first-time buyers get on the property ladder.
The paper laying out the proposals, Laying the Foundations: A Housing Strategy for England, says house builders will deposit 3.5 per cent of the sale price in the indemnity fund for each home sold through the scheme.
The Government will provide additional security of 5.5 per cent. The house builders contribution will be held by the lender for seven years and interest will be payable on it. Funds will be returned to the developer after the seven year period minus a portion of any losses on the loans in the scheme. A central administrator will create “silos” of funds that apply between lenders and house builders.
In the event of repossession, and the house being sold at a loss, the lender will be able to recover 95 per cent of any shortfall through the scheme. Public money will only be at risk if the borrower and the fund cannot cover costs.
The scheme will begin operating in the spring and will be open to all house builders and lenders operating in England, although similar schemes are under consideration for Wales and Scotland. The Government has made provision for up to 100,000 mortgages to be backed by the MIS which it says represents a “manageable risk”.
The Council of Mortgage Lenders helped develop the scheme with Government and the Home Builders’ Federation. The CML backs the move saying it will provide a fillip to the housing market and the wider economy as well as reducing regulatory burden on lenders.
CML director general Paul Smee says: “It is anticipated that lending within the scheme will attract relief on the regulatory capital that would otherwise be required on high loan-to-value lending, because of the significant mitigation of risk.
“UK lenders will not be compromising the quality of their lending or increasing their risk of loss through this scheme. It will however allow credit-worthy borrowers to obtain higher loan to value mortgages on new build properties without requiring the level of deposit which has become usual in recent years.”
This will include a £400m Get Britain Building fund to target housebuilding schemes that have stalled through a lack of development finance. It is set to “unlock” the construction of up to 16,000 homes and around 3,200 of those would be affordable properties.
Housing minister Grant Shapps told the BBC this morning that the Government was not looking to “pump up” the housing market but to help people get on the housing ladder in a “responsible” way.