David Cameron is poised to announce a flagship scheme to underwrite hundreds of millions of pounds of mortgages for new-build homes in an attempt to boost the ailing housebuilding industry, according to numerous sources.
The mortgage indemnity scheme is set to be unveiled by the prime minister on Monday as the centrepiece of a wider housing review. The government will underwrite a small percentage of each new loan on newly built property, leaving taxpayers on the hook if there was to be a severe housing downturn.
But under the proposed structure the state would not be first in line in the event of a a default, or even necessarily second. Instead, homeowners would still lose their deposits before the government suffered losses, which would be shared with the initial bank lender.
Homebuilders are reeling from a toxic cocktail of rising unemployment, planning sclerosis and – most damagingly – banks’ reluctance to lend to all but the most creditworthy.
Banks are demanding a typical deposit of 20 per cent on loans to first-time buyers. By underwriting a portion of the loan, the government will in effect be shifting that “loan to value” ratio so that the borrower needs a smaller deposit. That would lead to more demand and provide a boost to the construction industry in terms of sales and employment.
A similar idea is being explored in Scotland where the homebuilding industry is working with the Council of Mortgage Lenders and insurance broker Jardine Lloyd Thomson to devise a mortgage indemnity scheme.
John Cridland, director-general of the CBI employers’ organisation, made “jump-starting” the housing market one of the CBI’s key recommendations for the autumn statement but had not held out much hope that the government was going to deliver the mortgage underwriting that house builders had hope for.
Gordon Brown’s last government was an enthusiastic generator of numerous “shared equity” schemes where the government encouraged home-buyers, some with more success than others.
Yet the scheme may raise fears that the government is encouraging “moral hazard” by spending public money propping up the housing industry.
“There are good reasons why lenders are currently demanding high deposits from first-time buyers – because they think there’s significant risk of continued house price falls,” said Ian Mulheirn, director of the Social Market Foundation think-tank.
“Using taxpayers’ cash to try to reflate the lending bubble is a terrible use of public money. It will entice young buyers into an overpriced housing market, jeopardise taxpayers’ money, and most of the financial benefits will fall to mortgage providers rather than buyers.”
The housing review will also see the government announce a sharp rise in the number of plots of land put forward by Whitehall departments for homebuilding. The figure has risen from 50,000 at the time of the autumn Tory conference to more than 83,000 today.
Jim Pickard
Kiran Stacey