Labour Shadow housing minister Jack Dromey is calling for the Government’s mortgage indemnity scheme to be extended beyond newbuild.
Announced as part of the coalition’s housing strategy last November, the scheme sees housebuilders and the Government underwrite a proportion
of lending on newly built homes. It means lenders can make 95 per cent mortgages available on homes up to £500,000 at a reduced risk.
The scheme opened for business this month.
Speaking to Money Marketing, Dromey says ministers should look at extending the scheme beyond newbuild purchases, which he says make up only 10 per cent of the mortgage market.
He says: “The scheme is at least something from a Government that is doing virtually nothing to solve the biggest housing crisis in a generation.
Ministers should now look at extending the scheme because newbuild properties are only a small part of the market.”
Critics of the scheme have warned that newbuild properties instantly lose value following a sale, so people purchasing them risk falling into negative equity.
Dromey says: “There is a risk of negative equity in some circumstances but that will not be true in all cases. Having said that, borrowers need to be careful and lenders need to be responsible so we do not return to the dark days of widespread negative equity.”