Unit 1 Micro: Government launches New Buy Loan Guarantee Scheme

Here is a fresh attempt by the British government to breathe life into the moribund housing market. People in England are being offered financial help to climb onto or up the housing ladder as the government’s new mortgage indemnity scheme launches. Under the terms of the scheme, both the construction industry and taxpayers will act as co-guarantors on new homes bought by existing or first-time buyers. Will it work in boosting demand for new build homes? Is this scheme designed to help house-buyers or builders? Or is there a real risk of government failure?

Basics:

• Builders will pay 3.5 per cent of the price of the home
• Taxpayers will provide an additional guarantee of 5.5 per cent that will only be used if there is a major property crash.
• Mortgage lenders will be able to lend up to 95 per cent of the sale price which means new buyers in many instances will only need to find a five per cent deposit or £10,000 on a new £200,000 home. The typical deposit on a mortgage now is closer to £36,000
• The scheme is available on houses and flats valued under £500,000 in England only

Housing Industry Background Charts