Britain is set to announce a mortgage guarantee scheme for first-time home buyers, aiming to support the property market where activity is languishing at near-record low levels due to fears over the economy.
Media reported that Chancellor George Osborne would include a form of mortgage indemnity guarantees in his autumn statement on November 29, when he is due to present new measures to support the struggling economy.
A Treasury spokesman declined to discuss speculation ahead of the autumn statement.
The Home Builders Federation said it had been talking to the government for months on behalf of the industry to find ways to get lenders to lend at realistic rates.
A source close to the discussions said an agreement could be announced as soon as next Monday.
Housebuilders and government put a percentage of the sale price into a pot, such that if a person defaults, the lender is insured and this will insure that lenders lend at 95 percent loan-to-value, the source said.
A mortgage indemnity guarantee would reduce the risk on mortgages where borrowers put down a small deposit and would protect lenders if homeowners fell into negative equity.
If a home had to be sold for less than its mortgage value, the lender could claim on the guarantee.
The aim is to allow potential buyers to access mortgages with just a 5 percent deposit and still get a good rate, rather than the current average deposit for first-time buyers, which is running at 20 percent.
Earlier this month, the Council for Mortgage Lenders said mortgage repossessions had risen slightly in the three months to September compared with the previous quarter.
Mortgages at up to 95 per cent loan-to-value are still available but are much harder to obtain than before the credit crunch hit. Loans that are available also command much higher borrowing rates due to the higher risk of borrowers falling into negative equity but also because banks are required to hold more capital against low deposit mortgages.
(Reporting by Lorraine Turner, Sudip Kar-Gupta and Sven Egenter; Editing by Susan Fenton)