The Budget and the Impact on Lenders

by Mark Johnston

What is clear for the budgets that have come out and, dare I say, will come out for the time being, is that they are all consistent in keeping with the principals of the emergency budget set.  Fiscal recovery remains the absolute focus for the UK Government and they have very little money for manoeuvre. 

The Chancellor showed his intention, throwing £250 million into boosting first time buyers, clearly wishing to stimulate this market.  When you compare this funding against the £100 million allocated to fill in potholes, we begin to see that he really has no money to play with and is going for key areas.  The £250 million will only help about 10,000 into home ownership over two years but is at least a good start on the 800,000 waiting and wanting support. 

When you reviewed the details of the FirstBuy you see that it is remarkably similar to the predecessor, the HomeBuy initiative.  In fact what appears to be a good start swiftly moves into the realms of copying what was done before but, as there is far less cash around, being less generous. 

The predecessor allowed the borrower a loan of up to 30 per cent of the value of the property whereas the new initiative will allow a borrower up to 20 per cent instead.  Buyers, under the new scheme, will be expected to have a 5 per cent deposit on their own to take advantage of any 75 per cent loan to value mortgage rate offers in the market. 

With only £250 billion in the pot to help first time buyers, there will be quite a few disappointed hopeful owners.  There are on average half a million would be first time buyers every year.  The deposit remains the biggest barrier to homeownership and the average deposit has gone up from 10% to 21% in recent years.  There are currently there are over 200 mortgage deals that will lend 90% of property value, last year there were less than 150.  These LTV deals represent only a fraction of the deals that were available before the Credit Crunch began in 2008. 

Five local authorities, including Warrington, Blackpool, Newcastle under Lyme, Northumberland and East Lothian will be piloting this new initiative, which will see first time buyers with only a 5 per cent deposit helped with a top up from their local council.

Lloyds TSB is the first to sign up to the programme.  The councils will put 20 per cent of the price in a Lloyds TSB account, the funds will not go to the buyer and the lender will ask for 5 per cent of this deposit.

The overall feeling in the market is that this budget did go further than most expected and covered a range of issues and supported areas that are critical to growth in this country.  The first time buyer initiative will not and cannot deliver massive impetus into the market but is a significant short term push in the right direction.  Overall the budget and the mortgage markets acceptance of the way forward will help out the first time buyers.

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