Liontrust plays ‘little publicised aspect’ of mortgage guarantee scheme


Liontrust’s macro team has added positions in Paragon Group, and Telford Homes, following evidence that the Government’s mortgage guarantee scheme could see the number of homebuyers looking to remortgage at lower levels of interest rates “rapidly grow”.

The mortgage guarantee scheme was announced as part of the 2013 Budget. The scheme, launching in January 2014, is available to both first time buyers or home movers.

It will allow borrowers to obtain mortgage loans with a deposit of as little as 5 per cent, by providing lenders with protection against loss on the next 15 per cent of the value of the loan.

However, Jan Luthman, the co-manager of the £328.3m Liontrust Macro Equity Income and £82.1m Liontrust Macro UK Growth funds, highlights “a little publicised aspect” from the HM Treasury’s technical paper detailing that the scheme will also be available to borrowers looking to remortgage.

Remortgaging through the scheme will only be available on repayment loans and not interest-only loans. Remortgaging must also be through a new lender. Lenders are not permitted to use the scheme to remortgage their existing loans.

Luthman adds: “In the competition for mortgage loans, the playing field appears to have been tilted steeply in favour of challenger banks.

“Challenger banks will be able to offer borrowers who have loans with other banks the opportunity to remortgage with the protection of the Government’s mortgage guarantee scheme, while incumbent banks will not be able to access the scheme to protect their existing mortgage loan books.”

Luthman says that although the guidance they have received suggests the ability to remortgage will be included in the final version of the scheme in January 2014, “it is not a certainty”.

However if the remortgaging facility does in fact come into effect, Luthman believes this could see a “rapidly growing number of homebuyers seeking to remortgage at lower levels of interest rates”.

This is in turn should bring a knock-on benefit for companies linked to the availability of mortgages, prompting the addition of a number of new holdings based around this theme.

According to Luthman, a position in Paragon was taken on the basis that its current process to acquire a banking license brings “an opportunity to exploit these challenger friendly conditions”.

Elsewhere Luthman expects should be “well placed to benefit from the increased mortgage churn”, while Telford Homes should do well from the scheme’s aim of improving affordability for first time buyers.