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Confirmed: Mortgage Guarantee Scheme Going Ahead
HAMISH_MCTAVISH
Posts: 28,592 Forumite
http://www.guardian.co.uk/money/2013/jul/22/credit-history-help-to-buy-property-buyersThe chancellor, George Osborne, is hosting a breakfast meeting with lenders and builders to discuss the scheme's "mortgage guarantee" element, which is aimed at enabling many more people to obtain a home loan without the need for a prohibitively large deposit.
The first part of the scheme, launched in April, involves giving loans to homebuyers that can be used for a deposit on a new-build property. Until now there has only been limited information available about the second, larger, part of the initiative, which will see the government make available £12bn of guarantees to lenders – enough, it believes, to support £130bn of mortgages with the buyer paying a deposit as low as 5%.
Ministers have claimed the scheme could guarantee up to 190,000 mortgages a year over three years.
In recent years most of the lowest interest rates available have been on mortgages of up to 60% of the property's value, effectively shutting out first-time buyers without substantial cash backing. The new scheme, to run for three years, will see the government give lenders who offer low-deposit mortgages the chance to buy a guarantee on the portion of the mortgage between 80% and 95%. If a borrower gets into financial difficulty and their property is repossessed, the government will cover a chunk of the lender's losses.
For example, a family buying a £300,000 house would still have to put down a deposit of (at least) 5%. They would take out a 95% mortgage from a bank or building society, which means they would borrow £285,000, of which the first £45,000 would be covered by the government guarantee.
Lenders will have to pay a fee for each mortgage guaranteed, and this has yet to be finalised.
The Treasury said banks and building societies were being given more detailed information about the mortgage guarantee part of the scheme so they could prepare for next January.
A spokesman said that under these rules, would-be borrowers would not be able to access the guaranteed mortgages if their credit history did not meet the Financial Conduct Authority's "impaired credit" standards.
Someone who had a county court judgment against them for more than £500 and related to the previous three years would be barred.
He added: "Borrowers must be able to afford the mortgages, with income verification and stress testing as set out in the FCA's mortgage market review."
The Treasury said that the fee charged to lenders would be based on LTV bands and finalised following discussions with lenders. "It will be set to encourage as many lenders as possible to participate in the scheme, while protecting the taxpayer," it added.
It was also confirmed that people will not be able to use the scheme to buy second homes, with lenders required to collect a declaration stating that the borrower has no interest in a property anywhere else in the world.
It will not be possible to use Help to Buy in conjunction with any other government home-buying scheme
It remains to be seen if they can implement it successfully, as it is yet to be confirmed that this will exempt banks from the capital requirements for higher LTV, but another step in the right direction.
We're currently issuing in the region of 60,000 mortgages per month before this scheme arrives.
This scheme will add almost another 20,000 mortgages per month if it's implemented correctly, so a 33% increase in lending and buyer numbers almost overnight from the start of next year.
Which would get us to about 60% of the required levels to meet housing need and underlying demand from those that can afford to pay mortgages and would normally be considered creditworthy.
It's not the end of mortgage rationing.
But it's a good start.
:beer:
“The great enemy of the truth is very often not the lie – deliberate, contrived, and dishonest – but the myth, persistent, persuasive, and unrealistic.
Belief in myths allows the comfort of opinion without the discomfort of thought.”
-- President John F. Kennedy”
Belief in myths allows the comfort of opinion without the discomfort of thought.”
-- President John F. Kennedy”
0
Comments
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I still think it would all work better if the Government didn't do anything and let the market work as it should.0
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I still think it would all work better if the Government didn't do anything and let the market work as it should.
If the market was working as it should government wouldn't need to do anything.
But the mortgage market remains in a dysfunctional state, so government and the BOE have to restore functionality.“The great enemy of the truth is very often not the lie – deliberate, contrived, and dishonest – but the myth, persistent, persuasive, and unrealistic.
Belief in myths allows the comfort of opinion without the discomfort of thought.”
-- President John F. Kennedy”0 -
The Government don't need to do anything. They choose to.
No schemes = initial reduced sales = falling prices = increased affordability and confidence returns to bank lending = eventual increased sales = builders more likely to build reasonably priced houses ?? I know it's simplistic in the extreme but is it wrong?
It's worked for years without intervention, what makes it so necessary now?0 -
Properties of up to £600,000 will come under the plans, although foreign buyers with no history of property owning in the UK, buyers of second homes and buy-to-let landlords are, in theory, excluded - although there are no formal checks to prevent this.
But some housing experts have warned that the guarantee could create a new housing bubble.
The former governor of the Bank of England, Sir Mervyn King, said the scheme should not be extended.
For his part, the chancellor is expected to tell lenders to apply stringent testing to borrowers to check they can afford repayments - and prevent a surge of reckless lending.
http://www.bbc.co.uk/news/business-23412585
They haven't said how much it will cost yet.
Nice to know that they are not proposing any formal checks regulation around foreign, second home or BTL. But who cares as long as the builders are shifting stuff."If you act like an illiterate man, your learning will never stop... Being uneducated, you have no fear of the future.".....
"big business is parasitic, like a mosquito, whereas I prefer the lighter touch, like that of a butterfly. "A butterfly can suck honey from the flower without damaging it," "Arunachalam Muruganantham0 -
No schemes = initial reduced sales = falling prices = increased affordability = eventual increased sales = builders more likely to build reasonably priced houses ?? I know it's simplistic in the extreme but is it wrong?
In this case, yes, it's wrong.
What actually happened was.....
Broken mortgage market = reduced sales = building falls off a cliff = rents soared instead = housing crisis worsened
Prices fell a bit but then stabilised long before any of these help to buy schemes, because we have a massive housing shortage.
And the price of houses was not the reason people stopped buying, nor the reason banks stopped lending, so cheaper prices did not encourage more people to buy or the banks to lend more.
Just the opposite.
A million people have been forced into renting since 2007 thanks to mortgage rationing.It's worked for years without intervention, what makes it so necessary now?
The last crash in the 90's was mainly caused by interest rates shooting up to 15%. The average buyer was spending almost 70% of pay on mortgage repayments. It was a genuine affordability issue. But the banks kept on lending throughout, and the builders kept on building throughout.
This crash was not caused by affordability. The percentage of pay spent on mortgages even at peak in 2007 was far less than it was in the early 90's, and is at near record lows today. This crash was caused by mortgage rationing causing a rapid but temporary supply/demand imbalance, and it corrected itself quickly once people started pulling houses from the market and builders stopped building.
But here we are, 5 years on, and the dysfunctional mortgage market and ongoing severe rationing continues to stifle the housing market and wider economic recovery.
While rents have soared to record highs, prices have remained high, and building has fallen to 100 year lows.... Worsening what was already a severe shortage of housing.
It was politically and economically unsustainable.
Hence the interventions.“The great enemy of the truth is very often not the lie – deliberate, contrived, and dishonest – but the myth, persistent, persuasive, and unrealistic.
Belief in myths allows the comfort of opinion without the discomfort of thought.”
-- President John F. Kennedy”0 -
The main problem with the guarantee scheme to be introduced in January is that is doesn't encourage new building as such.
Although it might be argued that easing the entry of people at the bottom will encourgage people at the top of the tree to buy new builds it doesn't address the planning issues that make buying new building unatrractive.
Unless the net effect is a significant increase in property building then it's more likely simply to lead to a bubble with a big crash when it is withdrawn.0 -
HAMISH_MCTAVISH wrote: »In this case, yes, it's wrong.
What actually happened was.....
While rents have soared to record highs, prices have remained high, and building has fallen to 100 year lows.... Worsening what was already a severe shortage of housing.
It was politically and economically unsustainable.
Hence the interventions.
What has actually happened is that the population continues to grow .
There is more demand for housing.
Ownership and mortgage provision is only part of the equation.
Low cost social hosing is also required.
Following RTB, social house building dropped off a cliff. The housing industry has never produced enough, private owner occupier (mortgaged) housing to fill the gap in demand. since."If you act like an illiterate man, your learning will never stop... Being uneducated, you have no fear of the future.".....
"big business is parasitic, like a mosquito, whereas I prefer the lighter touch, like that of a butterfly. "A butterfly can suck honey from the flower without damaging it," "Arunachalam Muruganantham0 -
The US already has had this system for a long time and it worked quite well.
But if we do this we must also do as the US does, only guarantee loans that are granted conservatively.
But this does then create a sub-prime market as in the US which needs to be heavily regulated.Faith, hope, charity, these three; but the greatest of these is charity.0 -
If the manipulation ended and the free market was to be allowed then the property market would crash back down to fair value.
a free market in what exactly?
in building land ? (no planning controls)
in mortgage lending? (no banking regulation about capital ratios, or affordability etc)0
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