The i: views on guarantee scheme

ended 20. April 2021

7 responses from the Newspage community

"The introduction of Government-backed 95% LTV mortgages is likely to push prices in an already buoyant market higher and faster than we have seen over the past 12 months. As mortgage lenders begin to relax after the pandemic and economic uncertainty, mortgage credit has become more accessible over the past six months, which has caused a housing boom spurred on by the Stamp Duty holiday. The arrival of 95% loan-to-value mortgages has come as a welcome relief to many people, and whilst primarily aimed at first-time buyers, it can be used by home movers, too. "The only drawbacks that I can see are around the credit profile that is necessary to be approved for these high loan-to-value mortgages and the fact that most lenders are capping their income multiples slightly lower, which is a problem as prices continue to outstrip wage growth in a troubling way."
"The Government scheme is a positive move as it allows buyers with smaller deposits to get onto the property ladder, but people should be aware of the pricing of smaller deposit mortgage products. This should be a consideration for anyone looking to use a 5% deposit to purchase their home."
"The mortgage guarantee scheme will create more buyers and therefore see competition in the market increase, which will keep house prices on the same upward trend. Some lenders have placed restrictions on who they will lend to. For example, it must be the borrower's only residential property and they must not have an interest in any other property. The lending with a lot of lenders is also capped: the Halifax, for instance, will not go beyond £500,000 and some other lenders will not go above £300,000.
"We expect 95% loan-to-value mortgages to push up prices in the next couple of months. However, the end of the Stamp Duty holiday, which has been the property market's main driver, will likely cause prices to ease off in the third quarter. Whilst there are more options available for borrowers with a 5% deposit, there are limits on the maximum loan size that they should be aware of. For example, Barclays are capping the maximum loan on houses to £570,000 and £275,000 for flats. This will cause problems for many buyers looking in London where property prices are higher."
"If the mortgage guarantee scheme does affect prices, it will be to keep them artificially high. This is the logical outcome when a government floods cash and incentives into a free market. As for house prices moving forward, Brexit continues to remain hidden under water and with 4.9m people still on furlough and a sovereign credit card bill that is reaching epic proportions, there are still many unknowns out there. Drawbacks are hard to identify at this early stage although we always urge borrowers to proceed with caution and ensure that they not only understand the implications of the decisions they make today but also what the implications might be in the future. Everyone should be seeking the advise of an independent broker whenever they commit to borrowing significant sums of money for an extended period of time."
"The new mortgage guarantee scheme is likely to increase transactions and, as a result, send house prices higher. Lenders and surveyors will be very cautions here because they run a very real risk of negative equity in an already inflated market. I think we will see a significant number of down-valuations and sales having to be re-negotiated when it comes to the mortgage application and valuation stage. As for house prices, as ever this is directly related to supply and demand and how the economy performs. The end of the Stamp Duty holiday will also cool the market off slightly, although I don't believe it will fall off a cliff as some have predicted. The past 12 months have created a lot of potential first-time buyers who have been able to save larger deposits through the lockdown. "Although the offer of 95% products and the new mortgage guarantee scheme is a good thing, there are still a few drawbacks. Naturally the mortgages that come with it come with higher interest rates, but not all lenders are offering shorter 2-year products, meaning customers can be tied into high interest mortgages for up to five years. Another problem with 95% borrowing is that lenders are working off the same affordability models as 90%, so although somebody can potentially buy with a lower deposit they can't actually borrow any more money. If you couple that with lenders offering only 5-year fixed rates, it's going to lead to a situation where people are buying a house in which under normal circumstances they might sell after a couple of years to move up the property ladder, but will likely have to live there longer than they would like to."
“While low deposit schemes are undoubtedly welcome news for generation rent, especially as UK house prices have risen to record levels, first-time buyers in particular should be aware of the interest rates attached to these schemes, sometimes as high as 4%, and the long-term affordability. It is clear that a new tranche of people will have the opportunity to buy their first home, but this — alongside a lack of supply, more borrowing, and the Stamp Duty deadline — will create more demand, and could push prices up even higher."