Arjan Verbeek, CEO of Perenna has commented on the UK Government’s potential plans for a 99% mortgage scheme.
“While industry commentators have been very quick to dismiss this scheme, if done correctly, this has the potential to unlock the housing market. It is essential that the risks, like negative equity, associated with higher LTV mortgages, are mitigated, which can be achieved by combining the scheme with long-term fixed rate mortgages (LTFRM). The key is to remove market risk from borrowers, which traditional mortgage products can’t deliver.
“With an LTFRM, borrowers can also afford a larger loan and in some instances, up to six times their annual income. This is because the traditional mortgage products, and their ‘affordability’, are inherently linked and restricted to the lender’s much higher standard variable rate (SVR).
“However, there’s a clear need for regulation to be aligned and updated to reflect the current market. The Bank of England rightly introduced a loan-to-income cap to protect against reckless lending and excess leverage, but LTFRMs should be exempt because payments are fixed for term duration. The benefits to homeownership offset the risk of leverage on a long-term fixed rate too and the removal of the limit will incentivise larger lenders to offer more LTFRMs – ultimately benefiting the consumer with greater product choice, innovation, and giving a chance to step onto the housing ladder.”
