The property industry was a little taken aback when Chancellor Philip Hammond confirmed that the Mortgage Guarantee Scheme, one of the government’s Help to Buy schemes, would close to new loans on 31 December 2016.
The brainchild of George Osbourne, the Mortgage Guarantee Scheme was introduced in 2013 and is due to expire this year. Hammond has now dashed hopes of the scheme being extended.
The Mortgage Guarantee Scheme was engineered to increase the availability of high loan to value mortgages. According to a government statement, the scheme has served its purpose as confidence has returned to the market and an increasing number of lenders now offer 90-95% loans outside the scheme.
However, the government will continue offer the highly popular Help to Buy equity loan, which is available exclusively for new builds. “Help to Buy continues to drive demand for new build homes by making home ownership more affordable and realistic,” said Stewart Baseley, executive chairman of the Home Builders Federation. “Its success is directly leading to more homes being built as it provides the confidence developers need to invest in the land and people required to increase their output.”
Since April 2013, the Equity Loan scheme has made it possible to borrow up to 20% of the cost of a new build from the government. Buyers only need a 5% deposit and a 75% mortgage to make up the rest.
Buyers don’t have to pay anything on the 20% loan for the first five years. In the sixth year, the homeowner will be charged 1.75% of the loan’s value, which will increase every year by the retail price index plus 1%.
The Equity Loan scheme is only available for new build properties valued up to £600,000, if the developer is participating in the scheme.