Mortgage guarantees to be introduced for first-time buyers

Monday 21st November 2011

Sixteen thousand new homes will be built with the help of taxpayers' subsidies worth £400m, and taxpayers will also help underwrite mortgages for first-time buyers - but of new homes only.

Mortgage indemnity guarantees are to be given on 95% mortgages but critics say that the scheme will benefit the new homes industry rather than the housing market at large, and will do nothing to help chains. 

 The mortgage indemnity scheme will also be available to first-time movers who want to buy a new home.

The scheme was confirmed today by the prime minister during a visit to a Linden Homes'  development in Guildford, Surrey.

Under the scheme, the developer will deposit 3.5% of the value of the property in a fund that the lender will hold for seven years and on which interest is payable. The Government will provide an additional guarantee of 5.5% of the property value that can be called on if any losses by buyers defaulting exceed the developer's 3.5%.

In the Government's long-awaited housing strategy, to be published later today, other moves include proposals to allow billions of pounds invested in pension funds to be used to finance the construction of infrastruture, including power stations, wind turbines and roads.

Council house tenants are also set to be given the right to buy.

In a 'build for growth' proposal, developers will be able to bid for public funding to finish off developments that have stalled, whilst the Government will sell off thousands of acres of land owned by hospitals, schools and the Ministry of Defence.

Although David Cameron and Nick Clegg say in their foreword to the new housing strategy that it is radical and ambitious, and will shake up the housing market, critics have already been quick to voice concerns that it does little else but bring together ideas already announced.

In their foreword, the prime minister and his deputy say: "The housing market is one of the biggest victims of the credit crunch ... that lack of confidence is visible in derelict building sites and endless 'For Sale' signs. It is doing huge damage to our economy and our society, so it is right for government to step in and take bold action to unblock the market."

Charles Haresnape, managing director of Aldermore Residential Mortgages, was among those calling for more clarity on the strategy to be given as soon as possible.

He said: "It will be interesting to see how the proposed £400 million house building fund translates into new homes. At the moment there are approximately 100,000 new homes being built every year, but that figure needs to increase to 240,000 if demand for new housing is to be satisfied. It is suggested that the Government proposed new initiative will result in just 16,000 new properties which still leaves the Government woefully short of its target."

Stewart Baseley, executive chairman of the House Builders Federation, said: "This is a great deal for people wanting to buy a new home, whether first-time buyers or existing home owners who are unable to trade up. This scheme will allow people to buy their new home on realistic terms and help in particular hard pressed first-time buyers."

“It will also be a huge boost to house building. Since 2007, the biggest constraint on homes being built has been mortgage availability. This scheme will see more desperately needed homes being built, create jobs and give the economy the boost it needs.”