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Details of UK’s new mortgage guarantee scheme due to start in new year unveiled

At a meeting at Number 11 Downing Street the Chancellor discussed with lenders and builders details of how the scheme will work, as well as broader efforts to get more first time buyers on the property ladder.

‘I'm determined to back people who want to do their best for their families. Help to Buy is about getting behind those who aspire to own a home. The mortgage guarantee will support an increase in high loan to value mortgages for people who can't afford large deposits, and it will also boost house building,’ he said at the meeting.

He added that lenders now have the detail they need to go away and get ready for next January's launch of the programme.

Stewart Baseley, executive chairman of the Home Builders Federation, said the outlook for new homes delivery is a positive one and pointed out that taken together with the Equity Loan scheme government action has already helped boost home construction.
Indeed, Mark Clare, chief executive officer of Barratt Housing said that the number of homes the firm is building is already up over 20% on two years ago, due to the Help to Buy scheme.

He also said that the company is investing for the future by increasing its commitment to buy new land to over £1 billion in Barratt's financial year to the end of June.

Pete Redfern, chief executive of Taylor Wimpey, said he believes that the second phase of Help to Buy will benefit the whole market, particularly existing home owners who want to move up the housing ladder but have been unable to do so.

Under the rules anybody wishing to borrow money must be able to afford and mortgage and will be subject to income verification and stress testing, as set out in the Financial Conduct Authority's (FCA) Mortgage Market Review.

Borrowers won't be able to access guaranteed mortgages if their credit history doesn't meet FCA impaired credit standards.
People will not be able to use the mortgage guarantee scheme to buy second homes, with lenders required to collect a declaration stating that the borrower has no interest a property anywhere else in the world. It will not be possible to use Help to buy in conjunction with any other government scheme, including NewBuy.

The Council of Mortgage Lenders welcomed the progress report but pointed out that some details remain to be handed out, particularly the commercial fee for participation and how capital relief will work, to enable lenders to make an informed choice about their participation.

The CML has consistently emphasised that, to be successful, the Help to Buy mortgage guarantee scheme needs to be straightforward for lenders to implement and administer particularly given the short timescale available within which systems changes need to be made, have clear success criteria, and a clear exit strategy.

The three year nature of the scheme is subject to review by the Financial Policy Committee and lenders do not expect to see the scheme become permanent or semi permanent by default. They have also said that it needs to be accompanied by an equivalent government focus on the supply of new housing, not just the supply of credit, to avoid the unwelcome effects that stimulating demand without also increasing supply would create.

‘The mortgage market is open for business, and it is clear that government support has helped to create more favourable market conditions for home buyers. Lenders, whether they choose to participate in the guarantee scheme or stay outside, will continue to do their utmost to meet households' needs for mortgages, but always in a way that is responsible,’ said CML director general Paul Smee.

Brian Murphy, head of lending at the Mortgage Advice Bureau (MAB), said that the announcements will provide a second wind for Help to Buy and put many first time buyers one step closer to achieving their dream of owning a home.
 
‘The first part of the scheme has already supercharged the housing market and made one of the biggest impacts of any government scheme in recent memory on first time buyers, despite being available to a wider range of borrowers,’ he explained.

‘Because deposit requirements are still high, many people will agree with the Chancellor that first time buyers and second steppers are more deserving of support via the new mortgage guarantees than landlords and property investors,’ he said.

‘For part two of the scheme to meet its full potential, we need plenty of lenders to put their weight behind it so that product pricing is competitive and we don’t become over reliant on one or two big high street names. That is why it is so important that the Treasury acts quickly to finalise the scheme so that all lenders are encouraged to participate,’ he added.

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