Today, Monday 19th April, the government has launched its new mortgage guarantee scheme.
The scheme is aimed at getting the one part of the market working that looked most likely to falter: first time buyers. Without first-time buyers, sellers only have one option at the lower end of the market: landlords. Hence, the Government has sought to diversify the buyer base with this scheme.
Our view is that this scheme is another example of successive policy changes to open up access to the lower rungs of the housing ladder, but also that work against the interests of private landlords
The scheme will bake in demand for the coming future – currently until the end of 2022 and will likely prevent some of the falloff that the market would otherwise experience when the stamp duty holiday comes to an end.
We understand that 69 95% products were available in February, rising to 99 products in March and quickly followed by a rise to 187 in the first week of April.
Some commentators report that demand for 95% mortgages has trebled in the last month, however, we think that lender’s marketing departments ‘talking up’ demand should also be considered in the context of lockdown and associated uncertainties pent-up demand.
Under the terms of the scheme, the government guarantees the portion of the mortgage over 80% (so, with a 95% mortgage, the remaining 15%). This might sound complicated, but in practice, it just means the government will partially compensate the lender if a homeowner defaults on (fails to pay) their mortgage.
However, many banks are refusing to provide low-deposit mortgages to buyers of new-build properties because of concerns about inflated prices, prompting warnings from housebuilders of a potential drop in the supply of new homes.
We do provide mortgage advice so please don’t hesitate to get in touch if you have any queries, but don’t forget: Your home is at risk if you do not keep up repayments on a mortgage or other loan secured on it.”
