Just Mortgages: PM’s 95% mortgages should not be tax-backed
Speaking at the Conservative Party Conference, Prime Minister Boris Johnson confirmed the government’s commitment to provide 95% loan-to-value (LTV) mortgages to encourage renters to buy properties.
However, relying on tax to fund these mortgages is ill advised, says John Phillips, national operations manager at Just Mortgages: “The government’s aspiration to get more people on the housing ladder is laudable and something that most people would be in favour of.
“However, guaranteeing such mortgages with tax payer money cannot be the way to go at a time when the national debt is growing by the day.
“If the government wants lenders to bring back higher LTV mortgages then surely the sensible thing to do is to reintroduce a Mortgage Indemnity Guarantee (MIG) scheme.
“These were widespread up until the year 2000. Paid by the borrower, the MIG protected the lender against loss in the event of the borrower stopping paying their mortgage.
“While some considered it unfair that the borrower paid the insurance premium it did ultimately benefit the borrower as it ensured a large number of high LTV mortgages.
“If the government really does want to bring back high LTV mortgages this has to be the way forwards as mortgages guaranteed by the tax payer are clearly not sustainable at a time when government borrowing has now exceeded our annual GDP.”
Craig McKinlay, new business director at Kensington Mortgages, added: “The ‘Generation Buy’ scheme will be, in effect, a replacement for Help to Buy.
“Only a few lenders are dipping in and out of the high LTV market at present with ‘flash sales’ due to sheer demand – so this should reassure some lenders to enter more permanently and support first-time buyers.
“However, for others, the scheme could lead to further capacity issues for those being selective with their offering to manage demand.
“On the whole though, like the introduction of Help to Buy in 2013 helped boost confidence and ease lenders back into the small deposit market, we hope this scheme will do the same.”