The Prime Minister David Cameron this morning promised to lower the rungs on the housing ladder with a mortgage indemnity scheme.
Under the new scheme the construction industry and taxpayers will guarantee part of a homebuyer’s mortgage, allowing them to take out much larger loans than they would otherwise be eligible for. The NewBuy scheme will allow people to borrow up to 95 per cent of the sale price.
Mortgages worth 100 per cent or 120 per cent of house prices were common before the credit crunch but have now disappeared as banks try to avoid risk. Since 2007, most people seeking to buy newly-built houses have only been able to borrow up to 80 per cent of the property value.
The Government claimed the scheme will jump-start the housing market, which is currently stalling, and also support up to 50,000 jobs in construction and related industries by upping demand for new builds.
"The problem today is we have lenders who are not lending so builders cannot build so the buyers cannot buy and it needs the government to step in and help unblock the market," Mr Cameron said.
But critics worry the scheme is a gimmick to help the construction industry.
Dominik Lipnicki, of Your Mortgage Decisions, told the Telegraph: "You can already obtain 95% mortgages with comparable interest rates of 5% plus."
"It's more of a gimmick. It's a great headline and it will help some but mainly the construction industry. All this will do is encourage people to buy new properties but old property won't be sold and the chain will stop."