Paul Keith, solicitor with Miller Hendry Solicitors and Estate Agents commented “If this scheme does what it is supposed to do, it will be of great benefit to both the construction industry and house buyers”
“Over the last few years we have found that the biggest single barrier to people getting on to or moving up the housing ladder is not the affordability of mortgages but the availability of mortgages to those who do not have significant deposits. In that respect, this initiative is to be very much welcomed” he said.
The Mortgage Indemnity Scheme, launched by Infrastructure and Investment Secretary Nicola Sturgeon yesterday, will allow builders and developers to pay a proportion of the sale price for any house into an indemnity fund which will protect lenders from losses, thereby minimising their lending risks and freeing up capital for homebuyers who are looking to purchase their first home.
If mortgage lenders who have provided funding for the purchase of these houses then lose money after a repossession and sale, they can be indemnified against that loss from the indemnity fund. If the fund does not hold sufficient money to indemnify the lenders, a further indemnity will be provided by the Scottish Government. Because of the decreased risk provided by the indemnity fund, lenders will be able to offer up to 90 or 95% mortgages.
Paul Keith commented “Ultimately the success of this scheme will depend on mortgage lenders embracing it and setting reasonable lending criteria and interest rates.”
“However, as the scheme only applies to purchases of new build properties, we must be cautious about the potential knock on effects for the wider housing market. We offer advice to both developer clients who may be interested in joining this scheme and purchasers who would like to take advantage of it so we can see the opportunities and potential pitfalls of such a scheme from more than one perspective.”
“In an already depressed marketplace we have many clients currently selling ‘second hand’ properties that may suffer if potential purchasers find that it is easier to buy new build properties. What the housing market really needs is for lenders to ease mortgage restrictions for purchasers of all properties, but this scheme at least goes part of the way in stimulating this sector of the economy and is much needed.” He concluded.
Currently twelve major house builders have signed up to the scheme including lenders in the RBS Group. HBOS members are expected to follow suit. The scheme is intended to protect lenders not purchasers and if you have a mortgage of any kind, your home may still be repossessed if you do not keep up the payments.
More details about the Scheme can be found on the Scottish Government Website (www.scotland.gov.uk)