Taxpayers are set to take on millions of pounds worth of underwriting risk under a new Government scheme to kick-start the UK housing market and help first-time buyers to get on the property ladder.
The Government is supporting a new mortgage indemnity scheme led by the Home Builders Federation and Council of Mortgage Lenders that would enable first-time buyers to borrow up to 95% of the value of new build properties, meaning a deposit of just 5%, a significant reduction from the current average of 17%.
Part of the risk will be underwritten by the coalition Government, meaning that the taxpayer could be forced to bear some of the loss if the housing market suffered a major downturn.
However, in such an event the homebuyer would lose their deposit first and then the taxpayer would share any loss with the lending bank. The scheme will be launched in spring 2012.
Time to build
The Government has also unveiled details of a £400 million ‘Get Britain Building Fund’ as part of its housing strategy initiative with plans to build 16,000 new homes, around 3,200 of which would be ‘affordable homes’.
The initiative, which aims to provide the funding to put previously shelved housing projects back on track, is set to begin in July 2012, supporting 32,000 jobs across England.
It is hoped that the project could lead to 450,000 new homes being built by 2015, many of which would be affordable housing.
A recent study by Santander Mortgages showed that average housing deposits had reached £32,375, or 17% of a property’s value, preventing many first-time buyers from entering the market.
With one in four current non-homeowners saying they hoped to buy within the next five years, a drop in the amount they have to stump up for a deposit will come as welcome news, although the potential burden on taxpayers may cause some concern.
Even with access to a smaller deposit, it is vital to carefully consider which mortgage provider is right for you and the best deals are outlined in the Which? Best mortgage rates guide.