With the government coming under increasing pressure amid the release of further figures indicating the economy has stalled, George Osborne is set to announce a change to the mortgage market. The CBI recently called on the Coalition to introduce a mortgage indemnity guarantee scheme to boost the housing sector. Under the scheme, first time buyers would be able to take out higher loan-to-value mortgages with the Government underwriting the risk against the borrower failing to make payments.
The CBI also suggest that first-time buyers should be able to access savings locked up in their pension pots to boost their deposit monies. Longer term, the Confederation believe reducing the regulatory drag on house builders to ensure the planning system works in favour of house builders and reviewing stamp duty are necessary to sustain growth in the housing market. Digging deeper into the CBI’s recommendations, the scheme proposes ” supporting first-time buyers by enabling low deposit mortgages backed by MIG insurance schemes. This would be provided on a risk-sharing basis by mortgage providers and house builders with a possible role for the Government in providing tail-risk guarantees’.
Presumably the scheme is only designed for those first-time buyers seeking to purchase new build properties and could be said to ultimately be of more benefit to the bank than customer. If the customer struggles to keep up with the mortgage payments, do the bank seek the outstanding monies from the government and refrain from repossession? Furthermore, calling on the release of pension pots to boost deposits for first-time buyers may sound ambitious to many in that group; it seems questionable that those struggling to take their first step onto the housing ladder will have sizable funds stored away for retirement.
Two further recommendations, whilst less likely to grab the headlines, could in fact provide greater stimulus to the property market in both the short to mid term. By ensuring the availability of development finance to small and medium sized house builders and amending planning rules to make conversions from commercial to residential a smoother process, the Government could directly assist SMEs and individuals. Combined with a review of Stamp Duty Land Tax, there are levers the Coalition can pull for both immediate and progressive change to the construction and property industries to provide the “game-changer for growth and economic recovery’ the CBI identify as necessary.