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Equity loan portfolios worth 30p in £1

Sarah Davidson

October 31, 2012

Speaking at a Mortgage Introducer debate Rob Thomas, economist and housing expert, said he understood discussions had occurred but no loan portfolio sales had been agreed.

He said: “Through FirstBuy builders have been talking to third parties about selling equity portfolios and the prices they are looking at are around 25p to 30p in the pound.

“That suggests there’s no real primary market here and that the only reason builders are accumulating those portfolios is to sell houses and the only reason the government is involved is that they’re desperate for houses to be sold.”

The FirstBuy scheme reduces the amount of deposit first-time buyers have to find to just 5% by offering an equity loan of up to 20% provided by the government and developers. Mortgage lenders stump up the remaining 75% loan.

Christopher Down, chief executive of Hearthstone Investments, said the reason for the discount was that it’s the riskiest slice of the property value.

And he added: “The mortgage lender is always going to take first dibs. If the property is not sold at its actual value – and a lot of these incentivised scheme properties are sold for a premium – then it’s the top slice that takes the hit. That’s why pricing for equity portfolios is lower.”

But Nigel Stockton, financial services director at Countrywide, said it is wrong that new build property should still be suffering from the perception of being overvalued.

Stockton said: “There is a lot more transparency in the whole process than there used to be between the builder, developer, lender, valuer and mortgage broker. It’s very tight now.

“I don’t think it’s the price the properties are being sold at that’s the issue it’s the fact that it’s the top slice and that’s always going to take the hit and be sold at a discount for that reason. It’s hard to see anyone other than the government or a large institution taking that risk.”

Earlier this month Housing Minister Mark Prisk announced the first allocations from a £280m pot to help 16,500 first-time buyers benefit from the FirstBuy scheme.

He confirmed that £40m will go to 41 developers to help 2,500 first-time buyers this year.

Between September 2011 and March this year 2,994 sales had gone through via the FirstBuy scheme, with developers reporting more than 8,000 FirstBuy reservations by the end of August.

The £280m boost to FirstBuy is in addition to the £400m announced in the 2011 Budget.


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