The chancellor today announced a new mortgage guarantee scheme, which he claimed would dramatically increase the availability of loans. It extends the previous NewBuy Guarantee scheme to include older houses as well as new-builds.
“We’re going to help families who want a mortgage for any home they’re buying, old or new, but who cannot begin to afford the kind of deposits being demanded today,” he said.
George Osborne confirmed that the scheme will run for three years from the start of 2014 and will be used to support £130bn of mortgages.
The idea is that loans from High Street lenders would be underwritten by the government.
If a borrower defaults on a mortgage, he or she would stand to lose their 5% deposit. Thereafter the government would have to pay just under 15% of the outstanding amount, while the lender would be liable for just over 80%.
But in theory, lenders taking part will be happier to accept smaller deposits as security for loans.
Up to now, the best mortgage rates have only been available to those able to put down a deposit of up to 20%.
However, buy-to-let landlords will not be allowed to take advantage of the scheme.