The UK Government has announced a new incentive to attempt to kick start the stagnating UK housing market and at its core is a new idea to subsidise first time buyers deposits by underwriting the deposit from its own public purse. The idea being that first time buyers will only need to find a 5% deposit as opposed to the 20% now demanded by the banks.
It was only a few years ago that the Government injected massive amounts of public money into the UK banking system to prop them up and keep the economy fluid, however it seems that the banks have not kept their promise to continue lending and instead have simply stabilised their own businesses instead of the established lending system that has been in operation for as long as anyone can remember and worked well for first time buyers with only 5% deposits saved.
So once again the Government is stepping in to try and help the first time buyer, the ailing housing market and all the jobs that depend on it.
The banks are quite capable of lending to first time buyers with only a 5% deposit but are ruled by the indemnity insurers that underwrite them. The new first time buyer scheme announced by the UK Government aims to sidestep this problem by indemnifying the banks from its own public funds.
Some might say that it is an example of nationalising the indemnity industry, but as it only applies to first time buyers it can hardly be called that.
First time buyers are the life blood of the housing market, because without them entering at the bottom level the existing owners cannot move up the ladder or relocate to similar housing for other reasons like job moves or family relocations.
Historically a first time buyer had to save a deposit with a building society, and when the local manager deemed them “worthy” qualified to be a borrower. Then the banks stepped in and competed with the building societies. The first time buyers now had more choice and more say in where to get their mortgage. Then the insurance companies joined the banks in the free for all and the first time buyer was swamped with hundreds of mortgage choices. The “mortgage books” became valuable “tradable” assets and the banks were quick to sell their “mortgage books” on to raise more money to lend.
However, once the system of selling “mortgage books” became established and accepted, the banks started to lend to non credit worthy borrowers and sell those “books” on as well. Before long the buyers became aware that they had some bad assets on their hands lost trust in the banks and their decision makers.
The losers in all this were the first time buyers who had come to depend on the banks and building societies for their first mortgage, and the UK tax payer who’s money was used to bail out the failing disreputable banks.
The Governments announcement to underwrite first time buyer mortgages , and take the responsibility away from the banks, is testament to the Governments total mistrust in the banking system to do the job it declares it is capable of, yet by its own actions, proves it is not.
The new Government first time buyer scheme, allowing the return of the 95% mortgage for first time buyers, could be the beginning of the long awaited for recover of the UK housing market and the revival of the first time buyer mortgage sector that so many in the housing and property industry depend upon, as well as the children of yesterday to start a new life.