CLG reveals details of mortgage indemnity scheme
The government has released more detail on its new build mortgage indemnity scheme hours after announcing the policy.
Plans to set up a scheme where the government would offer security for a portion of the loans taken out by first-time buyers were unveiled in the Laying the foundations housing strategy yesterday.
However the strategy was light on detail, stating that house builders would pay 3.5 per cent of sale price into an indemnity fund and the government would provide an unspecified amount of ‘additional security’.
The Communities and Local Government department has now announced its contribution will bring the fund up to a total of 9 per cent of the property value.
It said borrowers will have access to 95 per cent loan to value mortgages through the scheme at affordable rates, and it will be available to all potential buyers except buy-to-let investors and second home owners.
For the borrower the mortgage will be handled in the same way as any other mortgage product, with the only difference being they are able to access a higher loan-to-value rate than would normally be the case.
Provision has been made to support up to 100,000 households through the scheme, and there will be a cap on the value of properties that can be included.
The indemnity fund will pay out if a property is repossessed and there is a shortfall. Builders will take the first loss, with the government only forced to step in once the builder’s fund has been exhausted.
The CLG has confirmed several major lenders and house builders have already signed up (see box).
The mortgage scheme has been welcomed, although some commentators questioned how effective it would be.
Jon Neale, head of residential research at Jones Lang LaSalle, said: ‘Over the past few years there have been, on average, around 200,000 first-time buyers per annum, compared to an average of over 450,000 before the financial crisis.
‘While this initiative is substantial and innovative – it has not been tried before in the UK – it cannot in itself restore first-time buyer numbers to more typical levels, or markedly reduce the backlog that has built up since first-time buyer numbers began falling around 2005/06. Regardless of mortgage concerns, affordability and the undersupply of new homes remain the major barriers.’
Steve Trusler, strategy director at Wates Living Space, said: ‘The 95 per cent mortgage indemnity fund is likely to a have major impact in getting the sector moving by providing a choice of purchase for first-time buyers, which due to constraints from lenders is not present at the moment.
‘However, the fund should be targeted at those that can afford it but are struggling with finding large deposits. Most schemes rely on mixed tenure and therefore mixed funding so it is important that all aspects of the housing sector are working as they are all reliant on each other.’
Who has signed up?
The mortgage indemnity scheme is being led by the Council of Mortgage Lenders and the Home Builders Federation. The companies that have signed up so far are:
- Lenders: Barclays, HSBC, Lloyds Banking Group, Nationwide, RBS, Santander and Yorkshire and Clydesdale Banks
- Builders: Barratt Developments, Crest Nicholson, McCarthy and Stone Retirement Lifestyles, Bellway, Fairview New Homes, The Miller Group, Bloor Homes, Galliford Try, Persimmon, Bovis Homes Group, Gladedale Group, Redrow, Taylor Wimpey, Antler Homes, Grainger, Stewart Milne, Aquinna Homes, Jones Homes, Places for People Group, Banner Homes Group, Morris Homes, Strata Homes, CALA Group, Nicholas King Homes, Urban Renaissance Villages Ltd, Croudace Homes Group, Octagon Developments, William Davis, Heyworth Developments
The government is going to set up a delivery group of lenders and builders, and will review the scheme after two years.