Prime Minister David Cameron has announced a boost to the housing market today.
His ‘New Buy Scheme’ will guarantee buyer mortgages via Nationwide, Nat West and Barclays for 100,000 prospective NEW home purchasers at loan to values of up to 95%, far higher than many High Street lenders will currently entertain. The upper qualification threshold, surprisingly, is £500,000, much greater than the typical price paid for a property by a first time buyer. Good news therefore that this announcement will benefit the majority of home buyers.
Or will it? Because the scheme does just apply to NEW homes, a fraction of those for sale.
We think that the well intentioned initiative misses a trick in avoiding assisting buyers of pre-owned properties.
The fact is that a transaction relating to a newly constructed property ends just there, with the developer. And whilst this is not a negative in itself in that we do need a buoyant house building sector that can expand, employ people and build more houses, it does fail to help ‘upward chains’ that would otherwise have benefited if this scheme were rolled out generally. Money is tight, we all know that and funding by guarantee of this type has to be measured and limited. But one cannot help but think that it is the developers themselves that will benefit more specifically than the property market itself.
With the banks still throttling loans to would be home purchasers, the Government could, we suggest, do something far more effective to revitalise the property market.
And that is, instead of bailing out the banks when they get it wrong, to set up a mortgage facility directly from the Government instead with a looser underwriting criteria that would benefit the self-employed, high loan to value borrower and those with less than a sparkling credit record as a consequence of being caught out in recent years as a result of the very exuberance orchestrated by those banks.
Risk? Yes of course. But return there would be too in the way of earning interest on mortgages via our proposed ‘People’s Mortgage Bank’ and far greater a return than the tax payer is currently seeing from its forced investment in RBS and Lloyds, surely?