Mortgage guarantee scheme changes
The £12 billion Help to Buy mortgage guarantee scheme has already helped many thousands of people to buy their own home. The scheme allows buyers with a 5% deposit to apply for a mortgage on a home (old or new) worth up to £600,000. The Government then guarantees a further 15% of the property value in return for a fee from the lender. The scheme is open to first-time buyers as well as existing home owners. Applicants to use the scheme will face the same checks as other borrowers and the scheme will run until 31 December 2016.
The Government recently announced that no new loans will be issued under the mortgage guarantee scheme where the size of the loan is at or above 4.5 times borrowers’ income in line with the mortgage lending limits recently introduced by the Bank of England.
The latest official statistics for the mortgage guarantee scheme demonstrate that the scheme:
- is supporting responsible lending: on average households are purchasing houses worth around £150,000 (well below the UK average price of £260,000) at an income multiple of 3.1 times salary
- is not a significant factor driving house price rises: mortgages supported by the scheme account for just around 1.3% of total mortgage lending
- is predominately supporting house purchases outside of London and the South East (81%), where house prices are rising at a modest rate.
The Chancellor has also asked the Financial Policy Committee to review the Help To Buy mortgage guarantee scheme in September to advise him on whether the key parameters of the scheme (the price cap and the fees charged to lenders) remain appropriate.