The Prime Minister and Deputy Prime Minister said their new plans will give the housing market a shot in the arm by boosting supply, easing financial pressures and helping with demand.
They believe their plans will “drive up the level of housebuilding, ensure we are helping new home owners and boost consumer confidence”.
They said their “strategy will break the current cycle in which lenders won't lend, builders can't build and buyers can't buy. We'll be making it easier for people to secure mortgages on new homes, help people get on the property ladder, address unfairness in social housing and ensure homes that have been left empty for years are lived in once again”.
At the heart of the strategy is a new build indemnity scheme that will give a helping hand for up to 100,000 prospective buyers who are currently frozen out of the housing market because of the need for large deposits.
Under the proposals, homebuyers will be able to secure loans on newly built homes with only a 5% deposit.
The Government and housebuilders will help provide security for the loan, so if the house is then sold for less than the outstanding mortgage total the lender will be able to recover its loss.
Through the scheme lenders will be encouraged to offer mortgages with smaller deposits, increasing demand for new homes and giving a welcome boost to the housing market.
The borrower’s own liability is exactly the same as on any other mortgage. The indemnity fund does not indemnify the borrower; it simply enables them to get a mortgage for a higher proportion of the value of the property than would otherwise be available.
The borrower will still be required to repay any shortfall incurred on the property if they fail to keep up their mortgage payments and the lender is forced to take possession and sell. The only difference is that, in those cases where the borrower cannot or will not meet their liabilities, the lender will be able to offset 95% of its loss against the indemnity fund.
The Council of Mortgage Lenders today welcomed the promise of government backing for the new build scheme which it has been negotiating together with the Home Builders Federation.
CML director general Paul Smee commented: "This scheme is good news for home-buyers, developers and indeed the UK economy. Lenders will be able to reduce the level of deposit needed by home-buyers in the new build sector, enabling more buyers to buy and so supporting the flow of new housing development, with all its positive consequences for jobs and the economy as a whole."
Helen Adams from first time buyer advice-site FirstRungNow.com commented: “Today’s news that the Government plans to make more land available for properties and a massive injection of £400million pounds into housing will be warmly welcomed by aspiring home owners.
"With house prices remaining out of reach in many areas of the country and mortgages for first time buyers being difficult to secure - partly because of the deposit requirements - this scheme will help more first time buyers and therefore help to kick-start the housing market.
"My only hope is that the mortgage indemnity support will not just be for new-build as funding which only supports new-build is good for the house-builders who are being subsidised but does little to move the whole market as there is no onward chain when a new home is purchased.”
Nationwide Building Society has confirmed that it will participate in the New Build Indemnity Scheme that has been announced today.
In order to encourage housing market activity, Nationwide would also like to see the current annual cash ISA limit of £5,340 increased to the maximum £10,680 in order to encourage those customers who are saving for a deposit.
Graham Beale, chief executive of Nationwide said: “There is clearly a housing shortage in the UK and we recognise the importance of the housing sector to the wider economy.
"This scheme seeks to boost the supply of properties available with modest deposits and, as such, we are pleased to be part of it, helping to shape its design and development.
"We would really like to see people who are saving for a deposit given more help through higher ISA limits and the flexibility to move their funds between cash and equity ISA products, without the restrictions that are in place now.”
