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Eye-catching housing strategy presents more questions than answers

by: Stephen Smith
  • 28/11/2011
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Eye-catching housing strategy presents more questions than answers
After 18 months in power, the coalition government has finally published a strategy for the housing market - at least, for England.

We might have been forgiven for thinking that we were being left alone to solve our own problems, but the document, which runs to some 79 pages shows that the government does recognise some of the really serious challenges facing the housing market.

The eye-catching announcement, among a range of initiatives relating to getting stalled housing developments back on track, freeing up public sector land and extending the discounts available on right to buy, is the support for an indemnity scheme to allow lenders to go to 95% LTV on new build properties.

However, will this boost mortgage lending and will brokers see much more business to advise upon as a result?

Well, it is not clear yet and, as I understand it from speaking to a number of lenders, we will not see products from lenders using the new facility until April or May next year.

There are clearly a lot of details to be worked out – not least, getting confirmation that lenders will get capital relief on loans where the indemnity is used.

That would mean that they would not have to put aside as much capital as they currently would for the higher LTV lending – something that is currently constraining the amount banks and building societies are lending to those with smaller deposits.

On the assumption that this is the case, will it mean more lending – that is gross lending – for brokers to deal with next year?

I am not sure it will, as the tiering of the capital levels will still be in place, albeit at lower levels than without the indemnity, and that will challenge lenders in making their money go further.

Lenders will still be able to make more loans at lower LTV than at higher LTV, given the same amount of capital.

I am also not sure that lenders will be able to make up the difference by charging much higher interest rates, as one of the conditions likely to be put on the scheme is for interest rates to be lower than are currently being charged for high LTV lending.

That was certainly the message given by the Housing Minister Grant Shapps when speaking on MoneyBox on Radio 4 last Saturday when challenged about the current high rates for the handful of 95% schemes available now.

It may be that agreements reached behind closed doors will mean that lenders line up behind this scheme next year. That would certainly be welcome.

Stephen Smith is director of housing at Legal & General

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