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Lenders not keen on a revamped mortgage guarantee scheme – Bamford

by: Patrick Bamford, business development director at AmTrust Mortgage & Credit
  • 16/10/2020
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Lenders not keen on a revamped mortgage guarantee scheme – Bamford
What goes around tends to come around and there was certainly a feeling of déjà vu at Boris Johnson’s Conservative Party Conference speech.

 

The prime minister focused heavily on supporting would-be first-time buyers who may currently be struggling to get on the housing ladder.

For those who may be longer in the tooth, there may also be a feeling of, ‘T’was ever thus’ but it’s obviously perceived as a good political way of reconnecting with so-called Generation Rent.

Undoubtedly this comes off the back of a significant drop in the number of 90 per cent-plus loan to value (LTV) products currently available, and a government concerned this will continue for some time and ultimately cause ongoing damage to the housing market.

There is also the small matter of the stamp duty holiday which I suspect the government believes is not going to be utilised in the same sort of numbers it would like, if first-timers and others are not going to be able to access higher LTV loans.

 

What is the solution?

Well, we clearly need more detail.

Just going on the speech and the media coverage it’s somewhat unclear how this will work, what the government support will actually be, what take-up there will be from lenders, and whether it can be as successful as the mortgage guarantee Help to Buy scheme for example?

Part of me wondered whether this forthcoming scheme would effectively be a replication of the Help to Buy mortgage guarantee which ended in 2016, but did a pretty good job of increasing high LTV product choice and creating greater competition overall in the sector.

But there are some caveats to that, with that scheme back being widely judged to be overly rigid and expensive.

It operated as a one-size fits all approach to offering a mortgage guarantee when, as we know only too well, lenders tend to want something individual and tailored to their own needs.

 

Alternatives available

From what I gather, lenders are not too enamoured of a ‘Son of Help to Buy mortgage guarantee’ arrangement anyway.

This is perhaps why Johnson’s speech focused on the delivery of 30-year long-term fixed-rate mortgages as a potential solution, albeit one which the UK mortgage market has steadfastly refused to embrace over the past 50 years.

That said, the likelihood is that any scheme will at the very least be standing on the shoulders of the first Help to Buy.

That raises further questions, not least whether that is a good use of taxpayer’s money when the country’s finances are being stretched, when government borrowing is already at astronomical levels, and when there is a private alternative already in place?

Some lenders already use alternatives to support their high LTV propositions, and these ultimately cost the government a lot less than guaranteeing every single mortgage taken out under this scheme.

 

Incentives needed

To secure widespread use of private mortgage insurance by lenders is going to need incentivising, and we will need HM Treasury and the Prudential Regulation Authority (PRA) to put their collective heads together to work out what the capital relief might be.

But by doing this they might find that such a scheme lands far better both politically and with those lenders who are going to be expected to enter into it.

These are still early days but these are certainly conversations which need to be had.

A scheme not backed by the taxpayer but by private arrangements can do everything the government wants it to and on that basis it should surely be an idea worth pursuing.

 

 

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