March 12 (Bloomberg) -- U.K. Prime Minister David Cameron said today that state-backed mortgages will allow buyers with small cash deposits to get loans for as much as 95 percent of the value of a newly built home.
To spur housing construction, the government will underwrite part of the loan to buyers of new properties. Instead of the typical 40,000-pound ($63,000) deposit they needed previously for a 200,000-pound property, people will be able to purchase a house with a deposit of about 10,000 pounds.
Cameron’s office estimated the program will help as many as 100,000 buyers and support an estimated 50,000 jobs in construction and related industries. Lenders including Barclays Plc, Nationwide Building Society and Royal Bank of Scotland Group Plc’s NatWest Home Loans Ltd. will offer mortgages under the government proposals, the Council of Mortgage Lenders said in an e-mailed statement.
“I want us to build more homes and I want more people to have the chance to own their own home,” Cameron said today. “It’s no good hoping people will climb the property ladder if the bottom rung is missing. Affordable properties and available mortgages are vital.”
The government program will help those buying a home for the first time as well as those seeking bigger properties, according to Mike Farley, the chief executive officer of Persimmon Plc, the U.K.’s largest homebuilder by market value.
‘No Salary Cap’
“It has no salary cap and is available to purchasers of new homes up to the value of 500,000 pounds,” Farley said by e-mail. “Initial rates from the large high-street lenders to support this product look very favorable.”
Homebuilders and the government will underwrite the first 9 percent of any loss made on a default allowing lenders to offer a 95 percent loan to value mortgage with the same risk as a loan at 85 percent, according to Liberum Capital analyst Charlie Campbell.
“Lending to new build might rise by 10 percent,” Campbell said by e-mail. “In the three months to September 2011, only 1.7 percent of loans advanced were at 90 percent loan to value or more, compared to 15 percent in early 2007.”
About 20,000 people in England have registered with Barratt Developments Plc, the U.K.’s largest homebuilder by volume, to buy their homes using state-backed mortgages, the company said in an e-mailed statement.
Single Family Housing
Homebuilders have moved their focus away from high volume development and toward larger, single family housing with wider margins after facing hundreds of millions of pounds of writedowns and falling sales in the aftermath of the housing collapse in 2007.
Some developers obtained planning permission for apartment projects in urban locations that were acquired before the U.K.’s housing market peaked, according to Jon Neale, a London-based residential research director for Jones Lang LaSalle Inc.
“These are not viable in the current climate, and there could be concerns if the NewBuy Guarantee is solely used for such sites,” Neale said today by e-mail.