£500,000 home loans backed by the taxpayer as NewBuy Guarantee scheme launched
Up to 100,000 people will get Government support to buy homes worth up to £500,000 in a Coalition move to revive the middle-class dream of home ownership, ministers will announce.
David Cameron will today formally open the NewBuy Guarantee scheme, where the Government guarantees part of a homebuyer’s mortgage, allowing them to take out much larger loans than they might otherwise be eligible for.
The guarantee will allow people buying new-build properties to borrow up to 95 per cent of the value of their new home.
Since the credit crisis that began in 2007, most people seeking to buy a newly-built property have been able to borrow no more than 80 per cent of the sale price.
As well as helping would-be home-owners, ministers say the new scheme will boost the construction industry – officials estimate that up to 50,000 jobs could be supported if the guarantee is fully used.
However, it could also raise fears that the State could end up guaranteeing more risky borrowers.
Some estimates suggest that the average deposit required for a mortgage is close to £38,000.
High inflation and squeezed wages mean that even people with salaries that would allow them to meet monthly mortgage payments can struggle to save such a sum.
According to the Government, the average age of a first-time buyer is now 37 in some parts of the UK.
Rising rents are also skewing the market against owner-occupiers, making it harder to save and attracting growing numbers of buy-to-let investors. .
A study of mortgage data yesterday revealed that banks and building societies are now lending more money to buy-to-let landlords than people who want occupy their property.
Formally launching the mortgage guarantee today, the Prime Minister will today pledge that the NewBuy scheme will help repair a “broken” housing ladder.
“It’s no good hoping people will climb the property ladder if the bottom rung is missing. Affordable properties and available mortgages are vital,” he will say.
“Strong families and stable communities are built from good homes. That’s why I want us to build more homes and I want more people to have the chance to own their own home.”
Significantly, the upper limit on property values will be set at £500,000, higher than some observers had expected.
The decision to set a higher limit was taken to ensure that people in London and the south-east of England are able to take advantage of the scheme.
Ministers are also understood to be keen to ensure that people from middle-class backgrounds who might aspire to more expensive homes are not excluded.
Some senior Conservatives are concerned that recent economic trends have made it impossible for even young people with university degrees and professional jobs to follow the example of previous generations by buying their own home.
Grant Shapps, the Housing Minister, said the guarantee scheme will help unlock a housing market where for many people, owning a home is “no longer a dream, but a distant fantasy.”
“We want to help everyone achieve their aspirations, and feel the pride of home ownership. The NewBuy Guarantee will give thousands of prospective buyers the chance to buy a home with a fraction of the deposit normally required.”
The guarantee scheme was first promised last year as part of a wider Coalition move to restart the housing market.
Today’s launch is going ahead despite reports that some mortgage lenders are wary of participating in the scheme: so far, only three mortgage lenders have signed up to take part.
Despite the political emphasis on first-time buyers, the guarantee scheme will be open to everyone, meaning that existing homeowners could use it to trade up to larger properties.
Nonetheless, the Council of Mortgage Lenders has backed the scheme as “good news for home-buyers”.
The CML acknowledged concerns about the increased risk of low-deposit mortgages, but insisted that lenders will not be relaxing their affordability criteria.
Mr Cameron will also say that the Coalition is “rebooting” the rules that allow tenants in council-owned properties to buy their homes.
Discounts available under the rules – introduced by the Thatcher government – will be trebled, offering a maximum discount of £75,000.
Paul Smee, the CML director general, said the new mortgages will help “creditworthy borrowers who simply haven’t yet managed to build up a large enough deposit to gain access to finance to buy a newly built home.”
He added: “Borrowers need to understand the implications of high loan-to-value borrowing, so we will be supporting the initiative with clear consumer information to help people decide whether NewBuy borrowing is an attractive option for them.”
The Home Builders Federation said NewBuy will “provide a vital kick-start for house builders large and small who will be able to build the homes and create the jobs that the country desperately needs.
Jack Dromey Labour’s Shadow Housing Minister, said the Coalition risked raising unrealistic expectations about the impact of the scheme.
“It would be absolutely wrong for the Government to raise the expectations of families and young couples only for them to find little choice and that they’re unaffordable.”
Credits : James Kirkup, Deputy Political Director, The Telegraph UK.