Chancellor George Osborne has unveiled details of the mortgage guarantee element of the popular Help to Buy Scheme. In what is hoped to act as a boost to lenders, mortgage guarantees will enable increases in high loan-to-value ratios by next January. This will result in improved availability of affordable mortgages for first-time buyers.
"I’m determined to back people who want to do their best for their families," Mr Osborne said. "Help to Buy is about getting behind those who aspire to own a home. The mortgage guarantee will support an increase in high loan-to-value mortgages for people who can’t afford large deposits, and it will also boost housebuilding."
Stewart Baseley, executive chairman of the Home Builders Federation, is confident mortgage guarantees will increase demand for construction, claiming the "outlook for new homes delivery is a positive one". In fact, Help to Buy in its entirety - i.e. including the equity loan scheme - has already helped to increase construction. Mark Clare, chief executive officer of Barratt Housing, explained that the number of homes they are building is already up 20 per cent on two years ago.
However, mortgage guarantees won't come without restrictions, ensuring the scheme won't lead to overheating. Those wishing to borrow money will need to be able to afford a mortgage and will be subject to income verification and stress testing. Those with credit histories that do not meet the Financial Conduct Authority's 'impaired credit standards' will be unable to access guaranteed mortgages.
Mortgage guarantees will also not be able to be used to finance second homes. Lenders will be required to collect a declaration to the effect that the borrower has no intention or interest in a property elsewhere in the world.
Following these guidelines, Pete Redfern, chief executive of Taylor Wimpey, believes it will be possible for the whole market to benefit, particularly those that already own a home but have been unable to move up the housing ladder due to strict lending criteria imposed by banks during the financial crisis.
- Thursday 25 July 2013