Let’s not expect miracles from government’s mortgage guarantee scheme – Ganatra

First of all, we should welcome the greater choice this gives borrowers and as the scheme is available within the second-hand property market that gives borrowers many more potential properties to choose from.

A year ago most lenders acted prudently to restrict higher loan to value (LTV) mortgages, tighten affordability and impose greater restrictions around certain types of employment.

A year on and with an exit on the horizon thanks to the vaccine, lenders are increasingly able to make lending decisions with more confidence and so we have seen a steady increase in options available at 90 per cent LTV.

More options have subsequently resulted in driving rates down, as lenders compete with each other.

Competition concerns

Fundamentally, this is the reason for an initial concern around the new government-backed scheme.

Although the major high street banks have confirmed their support, which is fantastic, the relatively small lender pool is unlikely to provide enough competition to substantially drive down rates.

This in turn will affect many borrowers’ ability to qualify for a mortgage, as the higher rates will impact upon overall affordability especially as the latter is still one of the elements in a lender’s underwriting assessment that has remained cautious.

It has also been interesting to see some lenders launch into 95 per cent LTV independently and the more that decide to do so, can only help to drive rates down.

However, for now the rates and exclusions on certain borrower types mean that access to the new scheme or the other 95 per cent LTV offerings is a stretch in terms of income affordability or is not attainable at all.

Despite this, the tapering of the Stamp Duty Land Tax (SDLT) holiday until the end of September will still save potential borrowers some money and so the option of having enough for a 10 per cent deposit may be available to a few more than it would normally be.

Miracles unlikely

We are all waiting to see the announcements from the participating lenders in terms of their initial product ranges and the criteria they will apply from April, and like Help to Buy, we should expect to see more lenders join the scheme over time or offer outside of the scheme.

This ultimately will drive down rates, like we witnessed on Help to Buy, but initially let’s not expect miracles while still being thankful that the scheme exists at all and has prompted the market to move to fill this void.

For those who fit affordability, monthly repayments may not ultimately be cheaper than their monthly rent, but they will have moved from being a member of Generation Rent to a homeowner and so let’s all applaud that.