If the UK government is serious about reversing the downward trend in homeownership, it must do more than timid collateralization on a small subset of loans announced in this week’s budget.
The UK mortgage guarantee program, which is designed to bring borrowers up the housing ladder, follows the proven model used between 2013 and 2016. It will be offered to borrowers with a minimum deposit of 5% of the value of the property, guaranteeing 20% of the purchase value.
It’s better than nothing, but quite poor compared to full-fledged guarantee schemes, such as those operating in France and the Netherlands, the latter being more relevant as it has a banking system similar to that of the UK. .
For a lump sum, Dutch borrowers are provided with insurance in case they have to sell their house as a result of unforeseen events. The borrower benefits from a considerably lower interest rate and a lower capital charge because the loan issuer is protected against credit losses.
The problem with the UK regime is that it appears to have been designed in a regulatory vacuum. The absence of any details on the treatment of capital suggests a lack of consultation with the banks and the Prudential Regulatory Authority.
If the UK government is serious about increasing real estate ownership and if it wants to make a real difference in the mortgage market, it needs to tackle it thoroughly by taking a close look at the capital treatment of secured mortgages using a fully integrated system supervised by a competent housing authority.