It has been revealed today that the Treasury is in initial talks with mortgage lenders and banking trade groups to try and implement an acceptable process for wide-spread lending at 95 per cent loan to value. The formation of the strategy is to assist banks in lending higher risk loans, by introducing mortgage indemnity guarantees to safe guard against the risk of lending with smaller securities to back the process.
Details emerging from the fledgling talks appear to show that the Treasury is looking to stimulate the market for first time buyers and those looking to move, but are as yet not sure of the best way to support the precarious proposition. While the plan to utilise mortgage indemnity guarantees appears to be the most assured way of securing the higher lending required, it is perhaps too early to be sure that the Treasury will look to enforce compulsory policies for all 95 per cent mortgages sold.
The use of MIG’s has more recently been associated with the New Buy scheme, introduced last year by the Government. The aim will be to offer the option to borrowers who do not wish to buy a newly built home or to those struggling to build the deposit required to purchase. Back in March of 2012, the Government backed NewBuy scheme introduced 95 per cent lending for borrowers purchasing a new build home. These mortgages are jointly underwritten by house building groups and the Government.
The scheme has often come under criticism from some quarters, as it solely restricts would-be purchasers to buying newly built property only. Furthermore, many lenders have since shied away from the scheme, claiming that the Government has only proportioned desirable capital requirements in favor of Barclays at this time.
Any impetus to increase the range of choices available to borrowers will be welcomed by the mortgage industry and purchasers alike. Simon Butler of Contractor Mortgages Made Easy said: ‘A question asked more than any other at present is how the Bank of England and the Government plan to further raise activity in the mortgage and housing sector. A large number of enquiries asking for mortgage deals with smaller deposits have been received since the turn of the year, which proves that there is an appetite in the market for these type of loans.’
Butler did also note that the loans are likely to come with certain caveats: ‘It’s important to bear in mind that underwriting for any mortgage will come down to the individual lender, and current rules being employed by many offering 90 per cent mortgages are already rigorous. In addition, rates at this level have only recently crept down, as widely noted with Halifax’s recent drop in their 90 per cent range, and any mortgage offered at 95 per cent is likely to be on a rate of at least 5 per cent interest. Although a MIG would at least help prospective purchasers to get a foot on the ladder, don’t be surprised if the lenders pass the cost of this directly to the borrower.’
All inherent pitfalls aside, the news is bound to be received warmly by borrowers. Current deposit levels remain highly prohibitive for many, and the costs to buy appear to be holding back the first time buyer market. The average house price in the UK at present is around the £180,000 mark, and with stamp duty, solicitors fees and the lenders arrangement fees to cover as a minimum, the current average cost to buy can be as high as £23,000. With a lack of incremental increases to salaries across the UK in recent times, this could be the right step to help many make the first move to property ownership.
Article by: Lucy Edmonds, Media Executive at Contractor Mortgages Made Easy
Media Contact: Raman Kaur, Public Relations Manager
Tel: 0844 44 88 80