Whilst the capital guarantee element will be something that lenders will decide to engage in followed by internal debates on pricing and how to offer which LTV bands of products, the equity loan is a shared ownership mortgage which is interest free for the first 5 years.
It is only in the sixth year that a fee of 1.75% gets charged, to escalate at RPI plus 1%. The choice of RPI is interesting as it was only this week that the United Kingdom Statistics Authority (UKSA) surprised markets with the decision that the Retail Prices Index (RPI) will no longer be designated as a national statistic.
The closest existing product to the equity loan is perhaps the Castle Trust Partnership Mortgage which has so far failed to gain traction with firms. What is it about this government scheme that will make it attractive to brokers and customers?
Having seen most lenders run from interest-only, with many ascribing this to regulatory concerns, we now see the government offering this, so the view from the FCA will be interesting as there is no cost to the consumer in the first five years. However the main mortgage must be capital repayment.
So for those customers looking at new build, it is likely that this interest free offer might be of great significance but until we see the full detail on the extent of any profit share or loss underwriting advice will be problematic.
This means another facet to giving advice to those looking at buying new, so making the MMR decision to drive the market towards advice look sensible.
It will be up to builders to engage in this initiative, so broker partnerships with them and lenders who might want to participate in this will be key. If this is a full shared appreciation loan, then I am not sure the advice market is ready to play, as consumers will struggle to remember the rules on re-sale.
Robert Sinclair is chief executive of AMI
