A government scheme to help aspiring homeowners to get on the property ladder has received backing from Britain’s biggest mortgage lenders.
Lloyds, NatWest, Santander, Barclays and HSBC are among the banks that have agreed to offer 95 per cent mortgages to creditworthy customers from next month, the chancellor said.
In return for a fee, lenders will receive a government guarantee on the top slice of the mortgage, so that in the event of repossession, the government will compensate them for a portion of the losses suffered.
The scheme is being introduced in response to a mass withdrawal of high loan-to-value mortgages during the pandemic. It is designed to help prospective homebuyers who cannot afford a big deposit but who can show that they can meet mortgage repayments to buy a home costing up to £600,000. All buyers will be able to fix their mortgage rate for five years. Unlike the taxpayer-funded Help to Buy loan scheme, it will not be restricted to new-build properties or first-time buyers.
Mortgage applications under the scheme will be open from April until December 2022. The government said that it would consider extending the scheme if it thought that it was needed.
The policy is based on a similar scheme introduced in 2013 in response to a shortage of high loan-to-value mortgage products after the global financial crisis. It helped more than 100,000 homebuyers and was stopped in 2017 when the mortgage market had improved.
The success of the scheme will hinge on how many more banks take it up and what pricing they adopt.
David Farr, tax director at Grant Thornton, the accountancy firm, said that the scheme was likely to “prop up demand and therefore house valuations, which will help with public confidence and businesses linked to the housing market”. However, he said that the scheme did not address “the chronic undersupply of new housing” and warned that it “could lead to concerns regarding the levels of debt taken on by individuals wanting to get on the housing ladder”.
Howard Archer, of the EY Item Club, the economic forecasting group, said that he was worried about a housing market correction “later this year or next year” that could leave buyers in negative equity.
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