Yesterday’s Budget

Chancellor George Osborne yesterday announced 2 schemes that will hopefully boost the housing market and therefore the economy.  The first is the Help-To-Buy scheme whereby the Governement will actually add 20% to the original 5% of the buyer’s deposit.  The buyer will then have a 25% deposit and a 75% mortgage (subject to the usual underwriting criteria).  That bit is simple. What has yet to be clearly explained is when the house is sold, and the Government is repaid, are the Government owed the initil capital sum or 20% of the property value, (which could differ greatly)?

The more complicated part of the budget that dealt with housing, is the Mortgage Guarantee scheme. This is due to start in January 2014, by which time it may well have been forgotten or s0me more pressing crisis will take precedence. The scheme says that the Governemnt will guarantee 20% of a mortgage given to someone who can only afford a 5% deposit.  What was not outlined yesterday was exactly how this will work in practice, because the Government are not actually putting any money up front, but are merely guranteeing 20% of the loan in the unfortunate event of the property being repossessed.  Therefore at the outset, the borrower will still be trying to obtain a 95% mortgage, which is exactly the type of lending that no lenders want to be involved with.  As many potential first time buyers have found out, 95% mortgages are as rare as rocking horse manure.

After the banner-waving headlines, it will be intereseting to watch the dynamics of how this is actually going to work.