5% government mortgage guarantee

Thrugelmir

getmore4less said:

here is some more info

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/965665/210301_Budget_Supplementary_Doc_-_mortgage_guarantee_scheme.pdf

interesting wording(my bold).

The government will provide lenders with the option to purchase a guarantee on the top- slice of the mortgage. In other words, the government will compensate the mortgage lender for a portion of the net losses suffered in the event of repossession. The guarantee will apply down to 80 per cent of the purchase value of the guaranteed property.

Who will be paying? 

I recall way back lenders had their own scheme with an extra charge for high LTV borrowing to protect the lender.
what happened to those, I forget? 
was it mortgage indemnity premium or something like that.

The guarantee will be valid for up to seven years after the mortgage is originated, evidence shows that loans are unlikely to default after such a period has elapsed. Furthermore, a mortgage taken out on a repayment basis would normally have paid down sufficient capital after this time so that the borrower’s equity stake would be close to or greater than 20 per cent, meaning that the guarantee would effectively no longer offer any protection.

(before house price change)
I did some numbers for 5 years that suggested a 25year max term was doable to get down to 80% lending
With a 7y guarantee that will allow longer full term options up to 30 years where after 7 the debt will be 80% of purchase

Another section outlines the eligibility

The cost of the guarantee will be priced into the mortgage product. Little different to the commercial assumption when setting mortgage interest rates as to the expected level of defaults. If house prices rise then the Government is progressively off the hook. As the 80% LTV relates only to the original purchase price. 

RelievedSheff

Mahsroh said:

Deleted_User said:

@getmore4less you referring to Higher Lending Charges?   I remember them from back in the day but they had mostly gone when I started advising. 

When I bought my first house in 2008 (just before the crash!!) I had a 97% Mortgage (I was young and naive) and this included said higher lending charge which as stated above was essentially an insurance policy against exactly what the government are now guaranteeing. 

The big difference was, said Higher Lending Charge was passed onto me as the borrower, and added to the Mortgage amount effectively meaning my LTV wasn't 97%, it was actually 99%!

A year later my LTV was circa 110% - 115%, but that's another painful story! 

Snap!

We bought our first house in 2007 with a Northern Rock Together Mortgage total LTV at the start of the term was 105%.

Shortly after house prices that had been rising steeply in the area suddenly plummeted. We were suddenly left with around 135% LTV and no hope of moving until we have made massive inroads into the mortgage. It wasn't the end of the world of course, we just had to stay there and keep paying the mortgage until the balance reduced enough and the house price increased enough that we could move.

Conversely we did eventually move after 12 years stuck in that house in 2019. We love the house that we are now living in but had we not made the move when we did we would now not be able to afford the home that we currently have. House prices here have increased significantly more than house prices have increased where we were previously living and the difference between the two would make the move today not affordable.

Mahsroh

RelievedSheff said:

Mahsroh said:

Deleted_User said:

@getmore4less you referring to Higher Lending Charges?   I remember them from back in the day but they had mostly gone when I started advising. 

When I bought my first house in 2008 (just before the crash!!) I had a 97% Mortgage (I was young and naive) and this included said higher lending charge which as stated above was essentially an insurance policy against exactly what the government are now guaranteeing. 

The big difference was, said Higher Lending Charge was passed onto me as the borrower, and added to the Mortgage amount effectively meaning my LTV wasn't 97%, it was actually 99%!

A year later my LTV was circa 110% - 115%, but that's another painful story! 

Snap!

We bought our first house in 2007 with a Northern Rock Together Mortgage total LTV at the start of the term was 105%.

Shortly after house prices that had been rising steeply in the area suddenly plummeted. We were suddenly left with around 135% LTV and no hope of moving until we have made massive inroads into the mortgage. It wasn't the end of the world of course, we just had to stay there and keep paying the mortgage until the balance reduced enough and the house price increased enough that we could move.

Conversely we did eventually move after 12 years stuck in that house in 2019. We love the house that we are now living in but had we not made the move when we did we would now not be able to afford the home that we currently have. House prices here have increased significantly more than house prices have increased where we were previously living and the difference between the two would make the move today not affordable.

I relocated for work (to a significantly more expensive part of the country!) and subsequently put it on the rental market (and private rented a house to live it), where it remains to this day. It took until 2019 to get a better BTL Mortgage deal at 75% LTV (was previously trapped in a high interest rate Consent to Lease mortgage with my original lender) and i'm now finally in a financial position where I can sell it to fund the purchase (by that i mean a deposit!) of my own family home. Just waiting for the tenant to leave now (noticed served) and get it on the market. I'm acutely aware of house prices rising in the next 12 months though making it no longer affordable, and I suspect this Government guarantee may not help (though it could increase the value of the property i'm selling between now and tenant leaving). 

I would always strongly advise against anyone on taking on a really high LTV Mortgage on the back of my experience. Creeping up to say 92% if the circumstances (and rates) are right, maybe.. at a push. But I'd steer clear of going as high as 95% under any circumstances.

Buying that house, with that Mortgage, at that time was single biggest financial mistake of my life. The worst part was at the time I bought we could see the crash coming. But I was so focused on getting on the ladder whilst high LTV Mortgages were still available I simply buried my head in the sand and ignored the bigger consequences.