95% mortgage proposals

by Mark Johnston

An insurer who commissioned a recent survey revealed that 75% of ministers of parliament (MPS) felt that people with stable incomes and who can afford mortgage repayments should be helped on to the property ladder, this financial assistance should be provided even if they do not have the 10-20% deposits required.

Under new proposals thousands of struggling first time buyers could be offered 95% mortgages. These proposals are being considered by some of Britain largest home builders and mortgage lenders.

Reportedly secret talks have been held between senior executives from several financial times stock exchange (FTSE) listed companies, leading banks and the council of mortgage lenders (CML), these talks were aimed at helping first time buyers getting a foot on the property ladder.

One such proposal understood to be discussed would involve home builders creating a special fund, to which significant sums of equity would be injected into it. The fund would be used by banks to underwrite mortgages for up to 95% loan to value (LTV). This fund would also help the banks meet so called “increased capital ratio” requirements. It has also been suggested that the fund may also reduce the risk if the mortgagee defaulted on their loan.

A potential stumbling block to this proposal however might come when deciding the amount of money that should be disposed into such a fund.

This proposal could mean that many first time buyers could potential secure a 2 bed roomed home with a deposit of as little as just £5,750.

Group chief executive at Taylor Wimpey, Pete Refern suggests that in their view the first time buyer crisis could be alleviated in part through common sense lending and schemes such as this one.

Another home builder at these talks added that “these schemes can only work if a good number of people sign up and you can create significant volumes”.

However any such proposals need to be handled with great care as it was high risk lending such as this that were thought to have contributed to the recent recession.

This disclosure comes just days after the Bank of England warned of a bleak few years ahead with the imminent prospect of rising interest rates. Interest rates could “quadruple” within a year it has been suggested.

Whilst affordability remains a core priority with every mortgage, particularly given the potential of rising interest rates and with lenders applying strict lending criteria to the products it would be no use having 95% mortgages if no one qualifies for them.

Warning was also given recently by analysts that home buyers may spend more than half of their take home pay on their mortgage once interest rates begin to rise again.

Discussions are thought to be at an advanced stage with lenders to support this proposal as part of a range of practical and workable solutions to allow more first time buyers on the property ladder.

In conclusion to this however some analysts believe the only way the market as a whole will be motivated again is for reasonable lending to be restored, not just to the new homes market.

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