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Is the Bovis Homes and Barclays tie-up the way ahead?

Yesterday's announcement that housebuilder Bovis Homes has agreed a joint venture with Barclays which will see home buyers guaranteed a mortgage of up to 90% has set tongues wagging in the housebuilding arena. So is this the way ahead for the UK housebuilding sector?

The structure of the deal between Bovis Homes and Barclays is such that Bovis Homes will put aside an agreed percentage of any profits on house sales as an insurance against potential mortgage problems in the future. In effect this pool of income will cover any potential losses for Barclays Bank on mortgage agreements although it will also encourage buyers to enter the housing market. But is this dangerous for Bovis Homes?

On the surface there is a risk in guaranteeing any mortgages issued to house buyers but then again we do not as yet know the level of income which would be required to back up any mortgage agreement. When you also consider that more house buyers will be encouraged to enter the market this could help to steady the UK property sector and ultimately reduce the risk to Bovis Homes as the sector stabilises and hopefully begins to grow.

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