A new government guarantee scheme to revive the mortgage market has a major flaw for some potential borrowers: it doesn’t cover investment properties. While the debate rages on over the decision, it makes it all the more important to look for the best deal for a buy to let mortgage.
The scheme, which is launching initially in England and applies only to new-build properties, is the first time the government has ever guaranteed a portion of a mortgage borrowing. It’s aimed at bringing back 95% mortgages to the market and works by the government and the construction company handing over a cash payment worth 9% of the purchase price to the lender. This money is returned when the borrower has repaid the relevant amount.
Buy to let Mortgage
One of the more controversial elements is the exclusion of buy to let mortgages from the deal. It can be argued that it’s unfair to exclude customers who will be buying with the intention of providing affordable rental deals, particularly to tenants who can’t afford to buy, for exactly the reasons which have prompted the government to make the unprecedented move in the first place.
The counter argument appears to be that the government shouldn’t be making riskier mortgages more available. From the perspective of the lender, buy to let mortgages not only carry the normal risks of house prices falling, making it difficult to recover the full amount in the event of a repossession, but there’s also the added factor that repayments often depend on the state of the rental market rather than the borrower’s personal income. There’s also a political element that the government might not want to encourage buy to let mortgage deals that may contribute to house prices growing too quickly.
For investment property buyers then, it’s a missed opportunity, but by no means a killer blow. There are still some great buy to let mortgage deals on the market if you know where to look.