UK Policy Favors First-Time Homebuyers

United Kingdom Prime Minister David Cameron announced a new program that allows first-time homebuyers of new properties to finance up to 95% of the cost of the purchase, …

United Kingdom Prime Minister David Cameron announced a new program that allows first-time homebuyers of new properties to finance up to 95% of the cost of the purchase, with some of the loan underwritten by the government, making it easier for buyers to get financing and engage the UK property market. The plan also includes £400 million in funding to help build 200,000 new homes by 2015 in areas that were once deemed unsuitable for building, and the Department for Communities and Local Government will also work to free up government lands to help move the program along. For more on this continue reading the following article from Property Wire.

Government plans that will allow first time buyers of new properties in the UK to borrow up to 95% of their value by underwriting part of the risk has been widely welcomed by the real estate and lending industries.

The plan, announced today (Monday 21 November) by Prime Minister David Cameron at a Linden Homes development in Guildford, England, also includes the introduction of a £400 million fund to help boost house building by providing grants to builders to develop plots of land that are currently considered to be uneconomic.

‘This is a significant step forward in making responsible, affordable lending available to home buyers across the country to help them purchase the home they’ve always wanted,’ said Ian Baker, Linden Homes Group managing director.

‘The lack of affordable mortgage lending has been one of the main constraints to the house building industry for a number of years. At Linden Homes, we have been working hard with a number of lenders to bring financial enablers to the market. However, the vital element of the government’s announcement will be that these mortgages are made available right across the country from major high street lenders,’ he explained.

‘Critically, they must be made available not only for new houses but apartments too so that as many people as possible have the opportunity to purchase their home,’ he added.

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As well as launching its new mortgage strategy, the Prime Minister also said the government is committed to providing an additional 200,000 new homes by 2015 through its build now, pay later deal. The Department for Communities and Local Government (DCLG) will now work with Whitehall property specialists to release as much government owned land as possible for private development. Local councils will also be encouraged to make their unused land available for development.

‘This is a crucial step in the right direction in making sites available for developers so we can build the homes this country so desperately needs. Improving access to prime development sites is a key component to achieving this,’ added Baker.

The Linden Homes site chosen for the announcement is a good example of what the government wants to do. The houses are built on a former disused Department for Environment, Food and Rural Affairs (DEFRA) site. It is a mixed development of 199 sustainable homes of which 70 are shared ownership and affordable rent. All homes are built to level three of the Code for Sustainable Homes and incorporate features including A-rated fitted appliances and a minimum 75% dedicated energy efficient lighting.
According to Samantha Baden, property analyst at FindaProperty.com building more homes for first time buyers and freeing up mortgage finance for them is crucial in getting the entire UK housing market moving more freely.

‘Our analysis shows that the average family in rental accommodation will now be paying around £890 a month or 46.2% of their net monthly income on rent, so enabling more first time buyers to get their first home and introducing Right to Buy for social housing tenants is an important step forward,’ she said.

‘Getting your own home is a critical step in helping boost people’s economic confidence and giving them a platform to build an investment for the future. We welcome this initiative as a valuable way to kick-start the first time buyer market,’ she added.

A sensibly structured mortgage guarantee scheme is a simple but positive idea, said Mark Montgomery, commercial director of 1st Property Lawyers. ‘First time buyers are crucial to a healthy property market as they are not tied to a chain and therefore greatly increase movement. A scheme that allows for higher LTV products to be offered would make home ownership a more achievable prospect for younger people again, which has to be welcomed,’ he explained.

The Paragon Group of Companies also welcomed the new housing strategy. ‘We welcome any measures that will help stimulate both the housing and mortgage markets. It is clear that the UK has a serious housing problem, with not enough homes being built and a lack of mortgage finance. Current housing completions simply aren’t sufficient to meet forecast household formations, so a commitment to build thousands of new homes is a positive start, whilst plans to support homebuyers through the mortgage indemnity scheme will stimulate the first time buyer market. It is crucial to the success of the mortgage market and the economy that we have a housing market in balance and with growth options across both the rental and owner occupied sectors,’ said Paragon Group chief executive Nigel Terrington.

It will mean that potential buyers who can afford a mortgage but who are struggling to save for a deposit will be able to get a loan, according to  Stuart Law, Chief Executive of Assetz.

‘It is good to see today’s announcement from the Government offering to underwrite some of the risk of higher loan to value mortgages via an indemnity fund supporting up to 95% loan to value loans. This is exactly the structure we suggested to HM treasury earlier this year and will leverage some risk capital provided by house builders to a level where 95% mortgages are possible again,’ he said.

‘We are talking about providing mortgages to high quality buyers who can more than afford monthly mortgage repayments but who are simply struggling to save the much larger deposits now required, so I expect the risk to taxpayer’s cash to be very small,’ he explained.

‘The enormous benefits to the wider economy will far outweigh the negligible risk of mortgage defaults, and the announcement of the £400 million investment fund to support development could be the kick start we need to start building our way out of this recession,’ he added.

This article was republished with permission from Property Wire.

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