The Government's new home ownership scheme.

[Victor McDade]

Good idea or bad idea?

Are we not asking for trouble here? To an economic layman, this sounds very much like the loan guarantees which started the sub prime crisis in America ( Freddie and Fannie Mae etc). Apart from property developers who does this actually help?

TELEGRAPH said:

£500,000 mortgages backed by the taxpayer as NewBuy Guarantee scheme launched
Up to 100,000 people will get Government support to buy new homes worth up to £500,000 in a Coalition move to revive the middle-class dream of home ownership, ministers will announce.

David Cameron will today formally open the NewBuy Guarantee scheme, where the Government guarantees part of a homebuyer’s mortgage, allowing them to take out much larger loans than they might otherwise be eligible for.

The guarantee will allow people buying new-build properties to borrow up to 95 per cent of the value of their new home.

Since the credit crisis that began in 2007, most people seeking to buy a newly-built property have been able to borrow no more than 80 per cent of the sale price.

As well as helping would-be home-owners, ministers say the new scheme will boost the construction industry – officials estimate that up to 50,000 jobs could be supported if the guarantee is fully used.

However, it could also raise fears that the State could end up guaranteeing more risky borrowers.

Some estimates suggest that the average deposit required for a mortgage is close to £38,000.

High inflation and squeezed wages mean that even people with salaries that would allow them to meet monthly mortgage payments can struggle to save such a sum.

According to the Government, the average age of a first-time buyer is now 37 in some parts of the UK.

Rising rents are also skewing the market against owner-occupiers, making it harder to save and attracting growing numbers of buy-to-let investors. .

A study of mortgage data yesterday revealed that banks and building societies are now lending more money to buy-to-let landlords than people who want occupy their property.

Formally launching the mortgage guarantee today, the Prime Minister will today pledge that the NewBuy scheme will help repair a “broken” housing ladder.

“It’s no good hoping people will climb the property ladder if the bottom rung is missing. Affordable properties and available mortgages are vital,” he will say.

“Strong families and stable communities are built from good homes. That’s why I want us to build more homes and I want more people to have the chance to own their own home.”

Significantly, the upper limit on property values will be set at £500,000, higher than some observers had expected.

The decision to set a higher limit was taken to ensure that people in London and the south-east of England are able to take advantage of the scheme.

Ministers are also understood to be keen to ensure that people from middle-class backgrounds who might aspire to more expensive homes are not excluded.

Some senior Conservatives are concerned that recent economic trends have made it impossible for even young people with university degrees and professional jobs to follow the example of previous generations by buying their own home.

Grant Shapps, the Housing Minister, said the guarantee scheme will help unlock a housing market where for many people, owning a home is “no longer a dream, but a distant fantasy.”

“We want to help everyone achieve their aspirations, and feel the pride of home ownership. The NewBuy Guarantee will give thousands of prospective buyers the chance to buy a home with a fraction of the deposit normally required.”

The guarantee scheme was first promised last year as part of a wider Coalition move to restart the housing market.

Today’s launch is going ahead despite reports that some mortgage lenders are wary of participating in the scheme: so far, only three mortgage lenders have signed up to take part.

Despite the political emphasis on first-time buyers, the guarantee scheme will be open to everyone, meaning that existing homeowners could use it to trade up to larger properties.

Nonetheless, the Council of Mortgage Lenders has backed the scheme as “good news for home-buyers”.

The CML acknowledged concerns about the increased risk of low-deposit mortgages, but insisted that lenders will not be relaxing their affordability criteria.

Mr Cameron will also say that the Coalition is “rebooting” the rules that allow tenants in council-owned properties to buy their homes.

Discounts available under the rules – introduced by the Thatcher government – will be trebled, offering a maximum discount of £75,000.

Paul Smee, the CML director general, said the new mortgages will help “creditworthy borrowers who simply haven’t yet managed to build up a large enough deposit to gain access to finance to buy a newly built home.”

He added: “Borrowers need to understand the implications of high loan-to-value borrowing, so we will be supporting the initiative with clear consumer information to help people decide whether NewBuy borrowing is an attractive option for them.”

The Home Builders Federation said NewBuy will “provide a vital kick-start for house builders large and small who will be able to build the homes and create the jobs that the country desperately needs.

Jack Dromey Labour’s Shadow Housing Minister, said the Coalition risked raising unrealistic expectations about the impact of the scheme.

“It would be absolutely wrong for the Government to raise the expectations of families and young couples only for them to find little choice and that they’re unaffordable.”

http://www.telegraph.co.uk/property/propertynews/9137248/500000-mortgages-backed-by-the-taxpayer-as-NewBuy-Guarantee-scheme-launched.html

Edited by Victor McDade on Monday 12th March 12:02

[BoRED S2upid]

Bad idea if you ask me if you can't afford more than a 5% deposit you shouldn't be buying a house IMO. Although come to think of it if these people default the government will garantee the loan so they pay the bank? nothing new there then.

[Puggit]

How about making stamp duty fair?

[Spiritual_Beggar]

BoRED S2upid said:

Bad idea if you ask me if you can't afford more than a 5% deposit you shouldn't be buying a house IMO. Although come to think of it if these people default the government will garantee the loan so they pay the bank? nothing new there then.

Surely that's the job of the 'Lender' to do their due diligence checks to see if the person they are lending to can actually service the debt.

[Ari]

If the bank isn't prepared to lend, why is the government seeing it as their job to step in and say "don't worry, we'll cover it if the borrower defaults"?

It seems they're desperate to prop up the housing market at all costs, firstly with spectacularly low interest rates in a bid to allow people to afford prices that they couldn't normally, and now this.

I don't get it, it helps everyone if prices are allowed to drop back to more sensible levels surely?

[JagLover]

In terms of an immediate 'growth strategy' it seems a good idea, when combined with reform of the planning system.

[Derek Smith]

Ari said:

If the bank isn't prepared to lend, why is the government seeing it as their job to step in and say "don't worry, we'll cover it if the borrower defaults"?

It seems they're desperate to prop up the housing market at all costs, firstly with spectacularly low interest rates in a bid to allow people to afford prices that they couldn't normally, and now this.

I don't get it, it helps everyone if prices are allowed to drop back to more sensible levels surely?

The building industry is one of the conservative party's biggest backers. Hence the dropping of restrictions allowing houses to be built with little compeback from local government or locals. This is aimed only at new builds, which runs at 100,000 pa, so doesn't really address the problem. It pushes up house prices if anything. But it keeps builders happy. There wil be, of course, another election.

[crankedup]

Ari said:

If the bank isn't prepared to lend, why is the government seeing it as their job to step in and say "don't worry, we'll cover it if the borrower defaults"?

It seems they're desperate to prop up the housing market at all costs, firstly with spectacularly low interest rates in a bid to allow people to afford prices that they couldn't normally, and now this.

I don't get it, it helps everyone if prices are allowed to drop back to more sensible levels surely?

Problem is that private business lenders are not prepared to loan out money to first time buyers for fear of defaults. The uncertainty in the jobs market makes lenders jittery and the whole economic uncertainty means houses are no longer the 100% investment certainty that they once were. Traditionally the building industry has led us out of previous recessions and although this time around its more than just a recession the industry is expected to be the first again to help us out of the financial pit. Government knows this and for these reasons is prepared to support the building market to the extent announced. It will help growth, housing needs, provide work both directly in building and the add on markets.
IMO prices would only drop back substantially if major land banks were released and Government directly involved itself in money loan supply for social housing.

[Ari]

crankedup said:

IMO prices would only drop back substantially if major land banks were released and Government directly involved itself in money loan supply for social housing.

What has major land banks got to do with anything? The housing shortage is a complete myth, take a look at Rightmove, there are thousands upon thousands of homes lying unsold. They're not selling because they're too much money.

In my area a good first time wage is £20,000 max and a cheap starter home is £130,000 min.

The numbers just don't add up.

[Digga]

Puggit said:

How about making stamp duty fair?

^This. Other than in a market where prices are rising rapidly (ie. a bubble) it is a hugely unfair tax and makes larges chunks of capital and the workforce immobile.

This scheme sounds dangerous.

[Esseesse]

Victor McDade said:

Apart from property developers who does this actually help?

It helps the government make the economy appear to be stronger than it really is. House prices need to take a serious hit, but CMD would be far less likely to win the next election as those with houses would feel disgruntled and those who were then able to buy wouldn't attribute their new ability with the Conservative party.

[crankedup]

Ari said:

crankedup said:

IMO prices would only drop back substantially if major land banks were released and Government directly involved itself in money loan supply for social housing.

What has major land banks got to do with anything? The housing shortage is a complete myth, take a look at Rightmove, there are thousands upon thousands of homes lying unsold. They're not selling because they're too much money.

In my area a good first time wage is £20,000 max and a cheap starter home is £130,000 min.

The numbers just don't add up.

Had this discussion recently on another thread. Builders have huge land banks and only release them for building as it suits them, obviously to maximise their investments. This in turn flows through to the sale price of new housing, high demand/shortage of product = high price. This is more marked in the larger homes built where a better mark up is easily possible and advantageous.
Empty homes that are genuinely for sale on the open market will sell if priced correctly at market value. Most will be priced highly where the vendor can afford to sit on the asset/investment. The market is IMO skewed to the investment side rather then as a saleable product at a competitive price, and has been for the past forty years. We have reached where we are now through the policies of the past forty years and its come to a head. Either more land and much more house building commences which will pressure the sale prices down, or an interjection that will artificially assist first time buyers financially. Its one or other, better still both.

[frosted]

On average new builds are 15% more expensive than second hand , why the GOVERMENT is backing up this scheme is beyond me. If you do it , do it right and offer it for all properties ffs

[Ozzie Osmond]

The government shouldn't interfere in the market. It's completely daft

Amongst other things, it will make any homes which are NOT new builds harder to sell because it will be harder for buyers to get a mortgage on them.

[grumbledoak]

What a load of cock! There are two parties to any trade. This is only going to push house prices up.

[Ari]

crankedup said:

Had this discussion recently on another thread. Builders have huge land banks and only release them for building as it suits them, obviously to maximise their investments. This in turn flows through to the sale price of new housing, high demand/shortage of product = high price.

All fine and well, but that's not the end of the story. Builders can charge what they like but if people can't afford, people won't buy. Likewise, they have to be competitive with secondhand homes or buyers won't buy.

A government attempting to prop up the market with new home incentives and cheap finance via low interest rates just staves off the inevitable and does no one any favours.

[Steffan]

The reasons for this scheme are as follows:

1) The Banks are clearly not going to lend at the percentage rates they used to pre 2008 drop. Probably correctly.

2) Unless the government find a method of reintroducing realistic first time buyer interest the housing market will die on its feet. Actually it is doing.

3) The government know that entreaties to the Banks are met with scorn and disdain. The Banks care only for the Banks.

4) Hence the total lack of lending by Banks to small businesses.

5)Unless the government can get volume building and construction started again the economy will tail off into serious recession. Getting steadily worse.

6) In order to achieve that the government MUST restart First Time Buyer interest.

7) The government are ONLY interested in new build to kick start the economy.

8) Secondhand sales create no construction work.

Hence such schemes.

Will it work?

I doubt it.

With all these "lets build up the economy schemes" there tends to be a lot of fiddling. scamming and abuse. Look at the ILA debacle and the current Jobs creation nonsense for which Mt Cameroons lady friend is in a collar feel scenario.

Recent governments of both persuasions have found the waste and cheating unmanageable on such schemes. The simple truth is government is not as clever as the cheats.

But this is at least an attempt to get things started.

Clearly it is better than doing nothing.

For all Millipedes lunacy and bks bull the fact in suggesting the UK can grow its way out of recession, unless the UK economy does actually start to grow we will be seeing at least a double dip recession. Probably a deeply damaging full on bottom barrel scraping recession.

We are seeing very much the same effects within the Euro zone which bodes badly for the UK in any event. A dip in the EU could double the drop in our falling economy

Any attempt is better than none. But I doubt if it will be sufficient. Or very effective

We do actually need a leader with real drive and energy capable of drawing the UK economy together and driving it forward into growth.

The approach of the current lot in bemoaning the attitude of Banks to business, whilst controlling well over 50% of the Banks Shareholdings is typical of what we actually have as leaders.

Inexperienced, weak minded, wet behind the ears schoolboys who hope their friends can solve the problems.

Not likely.

[crankedup]

Ari said:

crankedup said:

Had this discussion recently on another thread. Builders have huge land banks and only release them for building as it suits them, obviously to maximise their investments. This in turn flows through to the sale price of new housing, high demand/shortage of product = high price.

All fine and well, but that's not the end of the story. Builders can charge what they like but if people can't afford, people won't buy. Likewise, they have to be competitive with secondhand homes or buyers won't buy.

A government attempting to prop up the market with new home incentives and cheap finance via low interest rates just staves off the inevitable and does no one any favours.

Builders cannot simply charge what they like though! if they did then they would soon go bust. Its no different to any other product except in the housing industry the market has been manipulated by investment strategy. If houses are to expensive they will remain unsold, prices will have to drop until a buyer senses its a good buy. One of the problems with new development is the package agreements which come with P.P. These attached conditions have to be paid for and of course its the house buyer who pays. So its not just the house your buying, in some cases its shops, roads to a new supermarket or a bypass.
I take the view that some artificial interference is urgently needed to stimulate the market, doing nothing will drag prices down its true, perhaps thats a good thing? but the amount of time this 'natural adjustment' will take is just not available, we need growth right now and this is one way of achieving that. I see I am alone in my thinking on this but for once I agree with Government thinking.

[Rude-boy]

Puggit said:

How about making stamp duty fair?

Would be a good start.

Would stop a lot of people with £40k-60k buying up sub £125k properties on BTLs as it is a better way to use their money than buy a bigger house that they then have to pay out £9k on SDLT for.

[scotal]

Ozzie Osmond said:

Amongst other things, it will make any homes which are NOT new builds harder to sell because it will be harder for buyers to get a mortgage on them.

No it won't.
Mortgages are easier to obtain on exisitng /second hand/used/preloved homes (call them what you will)
than they are on Newbuilds, Lenders are very wary of Newbuild currently because of the large stocks of new build they have on their books that were artificially overvalued.
This will do nothing to change availabiltiy on existing home mortgages.

That doesn't mean I agree with it as a scheme though.

There aren't many lenders involving themselves in the scheme, so far only Barclays, Nationwide and Natwest have opted in. (Santander and Halifax to follow I beleive)
The scheme is only available for large developers offerings (Taylor WImpey, Redrow, Barrats et al.)

I dont think it will really make the FTB market flow. It may mean that people thinking about buying edge towards new build over exisitng, that's all.