Rishi Sunak grilled on support for ‘mortgage prisoners’
Bob Lyddon was speaking after the Chancellor set out his priorities for the year as he attempted to balance the books after the Government spent more than £300billion on measures aimed at mitigating the coronavirus pandemic last year. Among the measures unveiled by Mr Sunak was the Government’s new Mortgage Guarantee Scheme, aimed at increasing the availability of 95 percent loan-to-value mortgage products, enabling more households to access mortgages without the need for prohibitively large deposits.
However, Mr Lyddon, the founder of Lyddon Consulting Services Ltd, fears Britain’s hardworking taxpayers will ultimately be penalised.
He told Express.co.uk: “Does the government (HMTreasury and the ‘independent’ Bank of England) exist to tilt the playing field in favour of borrowers at the expense of savers, and to keep house prices high?
“It really looks as if it does. Instead of working to create the circumstances under which prudent people can save a house deposit, we have the new Mortgage Guarantee under which the taxpayer will issue guarantees to banks for the mortgage loans taken out by first-time buyers up to 95 percent of Loan-to-Value.”
Rishi Sunak’s plan is not good news for everyone, warned Mr Lyddon
Andrew Bailey, Governor of the Bank of England
Without a test to ensure first-time buyers genuinely only had five percent have it was an “open invitation” for a minority to “pile in at the expense of the entire population”, Mr Lyddon said.
He added: “The chancellor, in his speech, inferred it was a good thing that several banks were willing to participate.
“Of course they are. The taxpayer guarantee exempts the bank from holding any capital at all against these loans, so every 0.01 percent of interest margin goes straight to Profit.”
Rishi Sunak with the famous Budget briefcase
Government-backed loans can be “packaged up” as eligible collateral for the banks to borrow from the Bank of England, Mr Lyddon pointed out, meaning such borrowings were essentially interest-free.
He said: “So it is Christmas every day for the banks.
“It’s Christmas every day for the first-time buyer because they can get a leg up onto the housing ladder with almost no money of their own.
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Mr Sunak unveiled a new mortgage guarantee scheme
Rishi Sunak is grilled at a post-Budget press conference
“If they cannot pay and dump the house back on the bank, they don’t have the loan follow them as it would in many countries.”
However, not everybody was a winner, Mr Lyddon warned.
The Mortgage Guarantee of 95 percent of Loan-to-Value (LTV) meant the State would guarantee to private lenders the repayment of the entire loan and interest.
Budget 2021 in summary
He explained: “If the price goes to 130 percent of the initial LTV, the buyer gets the entire 30 percent.
“If the LTV goes to 70 percent, the buyer can walk away losing their five percent
and the taxpayer loses 25 percent, because the State, in the name of the taxpayer, reimburses the bank up to the amount of the loan they made.”
Mr Lyddon asked: “Why should some taxpayers be expected to underwrite the risks of others, with no share of the upside profits?”
The intervention – like other schemes such as Private Finance Initiatives (PFI) was “based on the misconception of the supposed ‘missing investor’, Mr Lyddon said.
Mr Sunak’s announcement made it “Christmas every day” for first-time homebuyers, said Mr Lyddon
He added: “In this case it is ‘missing investors’ in the plural and there are two of them.
“Firstly it is banks willing to lend up to 95 percent LTV: they are permitted to, it is their commercial decision not to, it is just that the resulting Residential Mortgage-Backed Securities would not be eligible for free refinancing at the Bank of England if they fell short of the Level C Collateral Set criteria.
“Secondly we miss the first-time buyer who lacks the 15 percent of deposit money to get a 80 percent-LTV loan, or seems to (like the Chancellor) not have heard of the scheme very common in such circumstances in the 1970s and 1980s – paying for a top-up insurance policy for the shortfall between the 80 percent threshold and the amount of deposit you had, and it was usually a policy for 10 percent on the basis that the borrower had to have 10 percent already.
“Of course now the missing deposit could be more like 15 percent than 10 percent because of the public policy mistakes listed above, but this type of scheme should be the first recourse, not throwing the risk on the taxpayer.”