A premium to be paid for the New Mortgage Guarantee Scheme?
Adam Hosker is director of Bespoke Finance
The mortgage guarantee scheme will give confidence to lenders returning 91%-95% LTV. Enabling households to purchase new build or existing homes. Helping first-time-buyers and existing homeowners alike.
The government will fully guarantee losses from lenders up to 80% of the purchase value. Then partially guarantee losses above that, up to 95% of lenders costs for up to seven years.
The eligibility is open to most purchases up to £600,000 purchase price on repayment mortgages. It won’t be available for buy-to-let, but no restrictions on landlords buying a new home.
The real restrictions will remain with mortgage lender criteria. With the new scheme doing nothing to alleviate affordability, unlike the Help-to-Buy scheme.
We will start to see mortgage products on 1 April 2021 with the scheme ending 31 December 2022.
What life will these mortgage products take?
What the headlines don’t tell us, is this is self-financing. With the taxpayer not on the line for any losses that may come about. Instead, all lenders will pay into a pot, which will cover any expected losses.
The scheme is not dissimilar to an old well known Mortgage Indemnity Guarantee (MIG). Where we used to see clients paying higher arrangement fees to cover the MIG policy.
I suspect, that mortgage lenders will pass on the cost for the Mortgage Guarantee Scheme in a similar manner.
Whilst we may celebrate the return of 91-95% LTV lending. We may find higher arrangement fees to offset the costs.
This will be good news for tax payers, but may have a heavy burden on borrowers, especially since the scheme does nothing for affordability.
The old MIG was calculated at between 6% and 8% of the loan amount. What kind of premium (if any) will we see on the Mortgage Guarantee Scheme?