July 16th, 2014
Lloyds Banking Group have today made it easier than ever before to buy a newly built home, says Taj Kang of specialist broker Contractor Mortgages Made Easy.
“Exciting news released by LBG today has revealed a real loosening of lending criteria for contractors wanting to buy new build property.”
“Previously, the government’s flagship ‘Help to Buy’ scheme was split into two quite clear angles. The first phase was aimed at newly built property and encompassed an equity loan from the government of up to 20% of the property purchase price.”
“The later, second phase was a 95% mortgage with a background ‘Mortgage Indemnity Guarantee’ – essentially an insurance policy that the lender took out against the borrower not paying the mortgage – for another 15% of the purchase price, but crucially only for existing property.”
“What the Lloyds Banking Group have today announced is that the MIG scheme is now available for new build property – the first time ever that contractor mortgages have been considered at above 90% in this domain. More good news is that they will also lend at higher levels than ever outside of ‘Help to Buy’ too.”
Banking giant LBG – which includes lenders such as BM Solutions, Lloyds Bank and Halifax – had previously backed away from Help to Buy, by closing access for home movers through mortgage brokers for the equity share phase.
“This really is significant news from Lloyds” says Kang. “As the majority lender in the equity share market, it appeared that they were making a conscious decision to ease off participation in the ‘Help to Buy’ scheme, but actually what they’ve cleverly done is to shift the focus from the equity share range, to the Mortgage Indemnity Guarantee range.”
A Mortgage Indemnity Guarantee works in a similar way to an insurance policy. The lender takes the policy out with the government’s ‘Home Buy’ arm, to guarantee the first 15% of the value of the home, should they ever need to repossess due to a borrower not paying their mortgage. This allows higher ‘loan to value’ lending as the risk to the banks is reduced.
“This coming on the same day as the Bank of England holding interest rates again at 0.5% is surely positive news for the property market outside of London, where historically there is a lower percentage of new build properties than in the rest of the UK” adds Taj.
“Whilst the products on offer for these schemes are not particularly attractive, Contractors need to bear in mind that they are 95% mortgages priced accordingly. Banks have just as long a memory as borrowers or industry experts when thinking of historically high LTV products which seemed too good to be true.”
As with most good news however, there is a caveat, as Taj explains.
“The double edged sword of this news is that with access to mortgage funding potentially being made easier for Contractors, there is a risk that ‘Help to Buy’ may not be around for as long as you think. You really cannot afford a delay in making an offer – it’s now or never.”
Article By: Mark McBurney, Senior Mortgage Consultant at Contractor Mortgages Made Easy
Media Contact: Raman Kaur, Public Relations Manager
Tel: 01489 555 080