First-time buyers struggling to find big deposits should be encouraged back into the housing market with a raft of measures to help them clinch a mortgage deal, a report from businesses has recommended.
The CBI's Unfreezing the Housing Market report called for the introduction of mortgage indemnity guarantees (MIGs) to support first-time buyers, the "lifeblood" of the housing market.
An MIG would protect the lender if the house buyer fell badly behind with payments and the property needed to be repossessed or sold. If the house was sold for less than the outstanding mortgage total, the lender could claim on the mortgage indemnity to recover its loss.
The report said that MIGs should be delivered by lenders and house builders working together in the private sector.
However, it suggested that the Government could step in and share some of the risk if it could not happen on a purely commercial basis.
The report also recommended allowing first-time buyers who have pension savings to boost their mortgage deposits by borrowing a percentage of their own pension pot at a low cost, to be paid back during their working life.
The initiative could be used as an alternative to other forms of credit and repayments could be collected from salaries as part of a company scheme.
John Cridland, CBI director-general, said: "We have to do more to give our young people hope in the future and support their aspirations to be home-owners... We could reduce the risk of higher loan-to-value mortgages if the Government encouraged lenders to take out insurance against the borrower failing to meet payments."
He added: "Owning a home has been a natural aspiration for generations of Britons since the 1950s, and should not become the preserve of a lucky few. Without a steady stream of first and second-time buyers, the housing market freezes and the whole economy suffers."
The report found that there were 194,600 first-time buyers last year, fewer than half the numbers in 2006. The median average loan-to-value mortgage ratio for first-time buyers was around 90% before the financial crisis, but it has dropped to below 80%, meaning buyers are needing to find bigger deposits at a time when living costs are rising.
© 2011 Press Association