One of the main talking points in the recent budget was Chancellor George Osborne’s announcement of a government backed guarantee for parts of mortgages. The idea is that lenders will be encouraged to lend up to 95% of a house value, with a proportion of that loan being guaranteed by the government. This would leave the buyer only needing to contribute a deposit of 5% of the value of the property. If a flat was being bought at £100,000 and that was its valuation the buyer would need to find a deposit of only £5000. Part of the £95,000 loan (say £25,000) would be guaranteed by the government – leaving the lender at risk only for £75,000 should the borrower default. One of the real difficulties the house market has faced in recent years has been the level of deposit required by lenders. With deposits of sometimes up to 25% being sought by lenders the effect has been to freeze many first time buyers out – particularly young buyers. This scheme is a government initiative to solve this “deposit problem”. However, apart from the bare bones of the scheme no details have been issued. It apparently will last for three years from the first of January 2014. “Whilst I would welcome any scheme which stimulates the house market – it is difficult to get enthusiastic till we know more” said David Borrowman of Caesar and Howie. “I don’t even know yet whether the scheme will apply in Scotland and how easy or difficult it will be to qualify for it. So whilst the idea seems positive the jury is out so far as I am concerned until more information is published by the government”.
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