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Laying the Foundations - A Housing Strategy for England

08 December 2011

We have recently seen the latest attempt from the Government to help buyers get on the housing ladder by offering a mortgage scheme encouraging lenders to offer 95% loan to value mortgages on new build properties in England.

The current scheme - First Buy – is predicted to have helped over 10,000 first-time buyers get a mortgage by the end of 2012. First Buy evolved from the Home Buy scheme, which was launched by the previous Government and is a shared equity scheme. It was designed primarily to encourage property developers to build housing for first time buyers. Whilst it has helped some with new build properties, affordable housing still remains a significant problem, particularly in urban areas and the South East.

As we saw during the credit boom lenders were happy to lend to borrowers with little or no deposits. Lenders have since faced losses on some of these loans; often on newly built homes. As a result of this, lenders are now asking borrowers buying new built homes to put in larger deposits. The number of homes being built each year is now well below the number needed based on the annual increase of the UK population.

The new scheme is part of Laying the Foundations - a Housing Strategy for England and will mean that the property developers put aside 3.5% of the sale price of each property sold under the scheme into an indemnity fund and the Government will provide additional security for the loan in the form of a guarantee of 5.5% of the property’s sale price. The fund will pay out to the lender if a property financed under the scheme is repossessed and there is a shortfall against the amount borrowed.

The Government has said that so far Lloyds Banking Group, Barclays, HSBC, Nationwide, Royal Bank of Scotland, Santander, Yorkshire and Clydesdale Banks have all agreed in principle to take part in the scheme. It is hoped that other lenders will also join in time to help boost this new scheme.

Jonathan Cornell (in association with Colleys, the Property Experts) 

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