As part of its agenda to get the nation building again, the Government has established a new build indemnity scheme.
Under that scheme, 95% loan to value mortgages will be available to buyers of new build properties – subject to certain financial constraints, which have yet to be announced.
The launch of the scheme will come as a very welcome boost for housebuilders who have suffered the dramatic effects of stalled bank lending since the onset of the credit crunch.
With mortgage lenders requiring high deposits, young people and families are being excluded from home ownership. This, combined with dramatically reduced market demand, means new home building rates have reached lows not seen since the 1920's. Urgent action is therefore required.
How does the scheme work?
According to the Home Builders Federation, which will lead the scheme jointly with the Council of Mortgage Lenders:
- Mortgages will be available for buyers who are able to afford a 5% deposit and whose financial standing is both assessed by an Independent Financial Adviser (IFA) and approved by the participating mortgage lender.
- Housebuilders will deposit 3.5% of the sale price for each home sold through the scheme in the indemnity fund for a period of seven years.
- The Government will provide a further guarantee equivalent to 5.5% of the sale price for each new home.
- If the lender incurs a loss through repossession for any of the properties in the scheme, the housebuilder's deposit will be used to cover that loss, up to the value of that housebuilder's funds in the deposit account.
- If losses exceed the funds in that house builder's account, the Government guarantee will take effect.
- The scheme is hoped to run until the end of the current Parliament and will be subject to a formal review after two years.
- The first loans are anticipated to be available during spring 2012.
- The Government intends to support up to £100,000 households to buy a new home through the scheme.
While the detailed arrangements required to give effect to the strategy have yet to be finalised, it is hoped that the scheme will invigorate the stalled housing market and benefit the wider economy at this critical time.