22 March 2013

Posted by Discount Insurance on Friday, March 22, 2013
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The Budget 2013

Chancellor George Osborne announced in his budget that the Bank of England is to help extend the Funding for Lending Scheme and also introduced the new Help to Buy Scheme.

The Help to Buy initiative will now provide help to existing homeowners looking to move, as well as first time buyers. It consists of two schemes  - ‘equity loan’ whereby the Government lends you up to 20% of the value of your new home in the form of a repayable loan, and ‘mortgage guarantee’ where lenders are encouraged to make more mortgages available for people with small deposits.

The schemes explained :

The Help to Buy equity loan is available on new-build housing (up to £600,000) only and customers will need a 5% deposit to qualify. The government will then lend customers up to 20% of the value of the property, which is repayable at any time or on the sale of the property. This means the customer has to secure a mortgage for just 75% of the purchase price.

Unlike equity loan, the mortgage guarantee scheme is available on new both new-build and existing housing. Again customers need a 5% deposit, but the government will cushion the dangers of high-risk lending by banks and building societies by guaranteeing them their money back if payments are not met by the customer.

John Windeler, one-time head of Alliance & Leicester explains: “If the lender could insure itself against this potential loss, then there would be no reason to lend so little. It would be no more risky for a bank to lend 90% of the price. rather than the usual 60%, because either way they would be guaranteed to get their money back from the insurance”. 

Both schemes will start in April 2013 and run for three years hoping to help more people across the country make the dream of home ownership a reality.
Existing homeowners should also benefit from the plans because of the boost it will provide to the supply of mortgages, demand from homebuyers and house prices, should they decide to sell.

However, The Chancellor was keen to point out that the initiative was aimed at boosting housing supply and not increasing house prices and also stressed the need for responsible lending. 

Peter Williams, executive director of IMLA, called the £5.4 Billion package “welcome news for both lenders and borrowers” but stressed that this is a three-year plan and patience will be needed to see the full effects of both schemes.
“This is a massive boost to house builders as well, which is good news for the economy. It is perhaps a shame that older homes were not included in the equity loan scheme as new-build properties don’t appeal to everyone but someone buying an older property can still access the mortgage guarantee.” Said Mark Harris, chief executive of mortgage broker SPF Private Clients.

Angel Mas, president of mortgage insurance, Europe, was more cautious about the plans saying: “Using the Government guarantee for new high loan to value mortgages will expose the UK taxpayer to unnecessary liability - potentially a multi-billion pound loss if there was a late 80s/early 90s style property crash”.
Anthony Hilton of the London Evening Standard, like many others, had hoped for more direct aid to housing associations to help step up the rate of building. However, he reasoned that more money and commitment to schemes that reduced the amount of customer deposit needed was “certainly better than nothing at all.”

Brokers and Small Businesses:
The government also announced a series of initiatives aimed at giving small and medium-sized businesses a helping hand - From April 2013, they will cut small businesses National Insurance bills by £2,000 a year through an employment allowance.

To add to this, they have also pledged to abolish the stamp duty for trading shares on London Stock Exchange’s Alternative Investment Market (AIM) with the aim of making it cheaper to buy and sell shares in small companies and start-up businesses.  

The Wider Picture:
Overall, the UK economy is expected to grow by just 0.6% in 2013 however. This is half the previous forecast of 1.2% growth, according to the Office for Budget Responsibility.
The decrease is attributed to lower than anticipated growth at the end of 2012 and smaller than expected contributions from net trade and public consumption.

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Richard  Anthony