A Telegraph
report states that average rural home prices in Britain have increased in
the last ten years. As a result of this, and in spite of the recent fall in
home prices, locals are unable to afford homes. Halifax, the UK’s largest mortgage lender,
says that home prices in Britain’s countryside have increased in value by 100,000 pounds in the last 10 years. While home sellers selling picturesque
countryside homes have a lot to rejoice about, first time home buyers are
finding it hard.
Prior to the credit crisis, mortgage lenders approved
mortgages with a 10% or less down payment. Post the crisis, lenders have become
rigid, insisting that borrowers pay down at least 20% of the purchase price. Most
first time buyers are finding it difficult to make the down payments. Lenders who
were careless in the past have become overly rigid, turning away borrowers who would
have easily qualified for a mortgage 2 years ago.
In this matter, Genworth Financial suggests that the Financial
Services Authority (FSA) of the UK can take a few pointers from Canada, which
requires the lender to be insured against default from a federal body when it
provides a mortgage with more than 80% loan to value ratio (LTV). Regulators here
in Canada also help banks ease liquidity, making available more money for
lending. This approach has worked well, with mortgage arrears under 1% and no
liquidity problems so far. If Britain follows this example, the mortgage
insurance would add just half a percentage point to home loan costs, but would go
a long way to encourage first-time home buyers.
