The British Government is launching a revolutionary scheme to unstick the stagnant UK housing market. It intends to underwrite first time buyer mortgages so that they can access the housing market with as little as a 5% deposit.
The scheme is coming under heavy criticism from some quarters, however the majority of UK mortgage lenders have signed up to the new deal. It also means that the British taxpayer is funding the project should the borrowers default. Many banks and building societies currently insist that first-time buyers put down a deposit of 20 percent of the value of their prospective property. However, the Government will now underwrite loans worth up to 95 percent of a property’s value. Housebuilders will also have to pay about three percent of the value of the new property into a fund to help cover the scheme’s liabilities.
The aim is that around 450,000 new homes will be built by 2015. To speed things up, the government is planning to back several building projects that have already begun – called “shovel-ready” projects – but have been put on hold due to funds drying up. At the same time, empty properties will be brought back into residential use and social housing tenants will be able to buy their homes for up to 50 per cent of the market price, with the money raised being spent on creating even more affordable housing.