Will the mortgage guarentee go ahead?

Graham_Devon

As more and more groups come out to warn the government over simply pushing prices up, will the mortgage guarentee to all homes go ahead in the new year?

I've heard calls on the radio for the government to do more too, increasing it to a 30% guarentee was one example to allow those with impaired credit to get a mortgage.

So, your thoughts? Will they push ahead regardless of the dangers and current evidence of price rises on the back of the existing scheme? Or will they retrench if house prices rise further over the coming months?

Even those in the business are accepting this could be stoking a bubble, as evidence today by RBS, the other day by Savills and also by Halifax and Nationwide.

michaels

Graham. Take out your calendar and look up the date of the next election. Then it should be pretty straight forward to answer all your rhetorical questions on stimulus and austerity.

Thrugelmir

Not a guarantee it's a loan. Impaired credit applications will fall at underwriting hurdle. Days of bad lending decisions are over.

Graham_Devon

michaels wrote: »

Graham. Take out your calendar and look up the date of the next election. Then it should be pretty straight forward to answer all your rhetorical questions on stimulus and austerity.

The point is, the coverage is not good. And will be even worse come election time if the small amoutn of evidence we have seen so far continues it's trend.

Creating a housing market bubble isn't a way to win an election. It's a way to get slated in the press. It's already happening. No one bar bankers, estate agents or landlord groups are celebrating it.

ILW

Does make you wonder, when house ownership is heading for less than 50% are rising prices going to be an electoral liability?

Radiantsoul

It will go ahead, we are still far from a bubble and even if there is a bubble it will feel pretty good for householders(who probably make a majority of voters). It may burst, but that will be latter.

chewmylegoff

Thrugelmir wrote: »

Not a guarantee it's a loan. Impaired credit applications will fall at underwriting hurdle. Days of bad lending decisions are over.

There are two elements to the scheme I think.

I) equity loans of up to 20%

II) mortgage guarantees to facilitate you buying with just a 5% deposit

Presumably the equity loan option will allow you to buy at a lower initial cost as you will only have to pay interest on a 75% mortgage (for the first 5 years at least) as opposed to a 95% mortgage under option II. The downside is that if you take an equity loan the govt gets 20% of any HPI when you sell.

K.Tarshes

ILW wrote: »

Does make you wonder, when house ownership is heading for less than 50% are rising prices going to be an electoral liability?

Its a good point. When more numbers of voters are renters that is who you need to appeal to to win.

Graham_Devon

chewmylegoff wrote: »

There are two elements to the scheme I think.

I) equity loans of up to 20%

II) mortgage guarantees to facilitate you buying with just a 5% deposit

Presumably the equity loan option will allow you to buy at a lower initial cost as you will only have to pay interest on a 75% mortgage (for the first 5 years at least) as opposed to a 95% mortgage under option II. The downside is that if you take an equity loan the govt gets 20% of any HPI when you sell.

regarding point 2, the equity never goes to the government.

What happens is when you sell, you need to repay the 20% loan. After 5 years, the loan will attract a 1.75% fee, which will rise with RPI + 1% each year.

So if you sell after 15 years, your fee will be 1.75% plus each years RPI +1%. Let's say it's 3%.

So all you need to do is pay them back 3%. If you get to the end of the 25 years, you have to pay the 20% plus the fee back (bit like interest only).

You cannot pay off the loan before you sell the home, UNLESS you pay off the enitre mortgage at the same time. So even if you have the cash, you can't pay it off unless you pay off the mortgage....so this is where remortgaging could work.

The problems are re-mortgaging will be almost non existant unless you can pay off the 20% loan. That is, unless a product comes out somewhere down the line that allows these eople to remortgage, but I fail to see what's in it for the banks. I can however see whats in it for the banks if you can't move without paying off the government.

If you stumble into negative equity, the loan and the fee isn't going to help at all. This is where the danger lies for the taxpayer. The homeowner, should they ever split up or whatever, may have no choice but to go through a repo, and we then, as taxpayers take the hit.

chewmylegoff

I think you are confusing the two.

With point 2 which you refer to, I.e. a MIG, you borrow 95% from the bank and the govt gives the bank a guarantees that it will make good any amount you pay back. You do not receive a loan from the govt.

With point 1 (I.e.) the equity loan, the govt absolutely does get an equity interest in your home which is why it is called an equity loan. So if you bought for £100,000 with a govt loan of £20k and later sold for £200,000 then you would have to pay £40k to the govt to settle the loan (plus any fees accruing after the 5 year interest free period ends - I.e. the 1.75% adjusted for CPI).

Thrugelmir

Graham_Devon wrote: »

The problems are re-mortgaging will be almost non existant unless you can pay off the 20% loan.

Hence my point regarding underwriting. The aim of the scheme is to help those that (genuinely) cannot afford to save a deposit. Yet have the required income. So there'll be no silly lending multiples or self cert income.

Over 96% of new mortgages are now on a repayment basis. This in itself helps to reduce negative equity, or the difficult situation when a relationship breaks down.