MORTGAGE LIFELINE FOR HOUSING MARKET21 November, 2011
Help for new home buyers will boost home building industry and create jobs & growth
A new build mortgage indemnity scheme unveiled today will finally provide some good news for hard pressed young people looking to get on to the housing ladder or those looking to move up to a larger home.
The Government and industry backed mortgage indemnity scheme will allow the larger mortgage lenders to offer 95% loans on new build homes, dramatically reducing the deposits people have to save. Recent years have seen lenders requiring large deposits of 20-25%, or £30-35,000 for the average first time buyer home, far out of the reach of most young people.
This has resulted in a collapse in the number of first time buyers. The scheme will also benefit existing home owners who cannot move because they have limited equity and can only afford a 5% deposit to trade up to a new, larger home.
The lack of mortgage availability is also the major short term constraint on house building, which has seen output fall to the lowest levels since the early 1920s. Returning to a sustainable mortgage market and allowing more people to buy a home will allow builders to get back to work and build the homes the country desperately needs.
Increasing house building levels to meet demand will create hundreds of thousands of jobs on building sites across the country and in support industries reliant on house building.
The scheme, led by HBF and the CML, and now supported by the Government, will see mortgages on new build homes underwritten by house builders and Government. The scheme will ensure lenders are more confident lending at 95% LTVs.
Speaking today, Stewart Baseley, Executive Chairman of the HBF said;
“This is a great deal for people wanting to buy a new home, whether first-time buyers or existing home owners who are unable to trade up. In recent years many people have been unable to realise their dreams of buying a home because of the huge deposits required by lenders. This scheme will allow people to buy their new home on realistic terms and help in particular hard pressed first time buyers.
“It will also be a huge boost to house building. Since 2007, the biggest constraint on homes being built has been mortgage availability. This scheme will see more desperately needed homes being built, create jobs and give the economy the boost it needs.”
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Notes to Editors:
- The Home Builders Federation (HBF) is the representative body of the home building industry in England and Wales. The HBF’s 300 member firms account for some 80% of all new homes built in England and Wales in any one year, and include companies of all sizes, ranging from multi-national, household names through regionally based businesses to small local companies: www.hbf.co.uk
- The developer will deposit cash funds to indemnify the lender, equivalent to 3.5% of the value of the property, that the lender will hold for seven years, and on which interest will be payable. Funds will be returned to the developer at the end of the seven-year period minus a portion of any credit losses on the loans in the scheme.
- The scheme will have a central administrator who will enable each lender and developer to create “silos” of funds that apply between them, so the scheme can cross subsidise properties built by the same builder and mortgaged with the same lender; but not properties built by different builders or mortgaged with other lenders.
- The scheme is open to any lender and any developer, but there is no compulsion to join, and there are no specific volume targets. Both flats and houses may be included in the scheme.
- The government will providing an additional guarantee of 5.5% of the value of each property included in the fund, that can be called upon in the event of losses exceeding the value of the funds held on deposit
- link to the housing strategy on CLG site