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.
Reaction:
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
