The chancellor George Osborne has today revealed radical plans to help would-be house buyers get onto the property ladder, including a pledge to back £130bn worth of mortgage lending.
Osborne said the Treasury will provide a guarantee, the like of which this country has never seen before.
The new guarantee will help mortgage lenders lend to borrowers who cannot afford huge deposits which are now prevalent in mortgage products across the market.
Osborne said this will help lenders provide mortgages with high loan to value ratios for those aspiring borrowers, subject to the usual checks on responsible lending.
He believes this guarantee could back mortgage lending to the total value of £130bn.
A separate plan was also unveiled to help people who cannot afford huge deposits: The Help to Buy scheme.
This will involve providing £3.5bn of capital spending during the course of three years to shared equity loans, which will be worth 20% of the total value of new-build homes.
If a borrower stumps up 5% of a deposit, the government will lend a further 20%, interest free, for the first five years of the loan.
As part of Help to Buy, borrowers will only need to secure up to a 75% mortgage from a bank or building society and the scheme is available from 1 April 2013.
It will run for three years and will provide £3.5billion of additional investment. A maximum home purchase of £600,000 applies.
Osborne said: “Deposits for a mortgage have put ownership beyond the majority of consumers. Not only is this a blow to home ownership aspirations, it’s a blow to social mobility.”
Osborne has today also revealed that he is holding talks with the Bank of England to extend the central bank’s Funding for Lending Scheme (FLS).
Critics of the scheme have said that banks are using the FLS simply to hoard cash. Lenders drew down £13.8bn from the FLS since August, and £9.5bn of this occurred in the fourth quarter of 2012. But net lending was -£2.4bn in the fourth quarter of 2012.
Osborne revealed that the (FLS) remains an important component of the Treasury’s plans to ensure small businesses can access funds from banks to boost growth. He also mentioned that the government will progress with plans for the business bank.
Meanwhile, the chancellor said there will be £11.5 billion of spending cuts outside the NHS, schools and foreign aid
Corporation tax in the UK will now be slashed to 20% from April 2015 but, like previous cuts, it won’t apply to the banking sector.