Finanze® Daily Digest - 07/10/2022

The Brief: Kwasi Kwarteng is reportedly considering extending the mortgage guarantee scheme after consulting with UK bankers from Lloyds Banking Group, HSBC UK and Santander on Thursday. The program is set to expire at the end of the year.

Why It Matters: The scheme, which was revived in April 2021, provides lenders compensation from the government to cover their losses on mortgages above 80% of the property’s purchase price in cases where the property underwent repossession. The program was intended to support creditworthy borrowers to afford 95% loan-to-value mortgages during the onset of the pandemic, which saw a huge drop in the number of mortgage products available.

Finanze® Foresights: Research from The Guardian revealed that the current scheme was not successful at supporting new homebuyers in their 30s since home prices soared during the pandemic. However, this week, most housing price forecasts were revised to negative figures after the sharp rise in mortgage rates that hit almost 6% on Monday. The possible extension of the program is supposed to help buyers that can only afford a 5% deposit. The issue here, however, is if these new homebuyers will react positively given that average earnings continue to be outpaced by inflation in the past months and have lowered the living standards of many citizens. The only assurance from this is that the market is seeing some hopes of recovering to its pre-mini-budget level after Kwarteng has been consistent in listening to the business sector's recommendations to support his pro-growth plans.

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