The Treasury Department has confirmed the launch of its new mortgage guarantee program, which will be used permanently from this month.
The move is designed to “incentive and maintain 91% to 95% of loans to value mortgages, ensuring that they have a portion of the potential losses to these mortgages by providing government-backed assurances to participating lenders,” the department said in a 45-page technical document that the essay has very little detail.
However, it added: “The mortgage offered through the scheme will enable qualified first-time home buyers and movers to purchase a home with a deposit of up to 5% across the UK.”
The plan, also known as “free purchase”, was a manifesto promised by the general election in July last year.
“As the current situation, there is still very few deposits on the market with 5% at FTB prices, so any improvement in product availability should be welcomed.
“FTBS is the lifeblood of the mortgage market, and they have been facing an incredible situation to afford mortgages.
Springall added: “The Ministry of Finance also stressed that any losses caused by the plan will be low and that a government responsibility will be £3.2 billion.”
“But those who borrow at the high end of the loan-to-value range will have little equity in the home, and if house prices plummet, disasters can cause disaster.”
Peter Stimson, head of mortgage loans for Peter Stimson, also noted that loans to the program could be at a higher rate.
“The freedom to buy plans cuts some of the risk burden between lenders and government, but don’t expect it to make borrowers cheaper,” Stemson said.
“Like the mortgage guarantee scheme it replaces, the capital provided to mortgage lenders may be at market speed rather than discounted.”
Stemson said he hopes to return to the government’s 2013 Help Purchase Program, which runs for a decade and offers home buyers a stock loan of 40% of the purchase price of a new construction home without paying interest for five years.
The plan is responsible for more than 375,654 loans worth £23.6 billion in a decade, although critics point to the project helping to increase the price of new homes.
But, Stimson said: “For all Prime Minister Rachel Reeves’ big fanfare, the big problem still outweighs the cost of buying freedom, and it will adjust rather than change, offering loans to first-time buyers.
“She will do better to bring back the updated version of the help-buy program to enhance opportunities for home construction and financing.
“Possible buyers need to build more homes instead of patching up products that the market already offers on its own.”
