Prime Minister Boris Johnson’s promise to turn’ Generation Rent into Generation Buy ‘will have gone smoothly, with many Tory members tapping into his virtual party conference speech on Monday
He said further reforms would mark the « biggest expansion in homeownership since the 1980s, » nodding to the totemic right to purchase policy of the old Conservative leader Margaret Thatcher during this decade
The new 5% deposit mortgages are likely to be popular with potential buyers who have difficulty raising deposits But it is not yet clear how the government will ensure that banks start offering such loans – and experts warn measures to encourage them could prove controversial and counterproductive
Johnson told his party that most people’s « overwhelming instinct » is to buy a home despite the flexibility of renting, with a « joy and pride » that comes with owning a home. house, a house inaccessible to many tenants
New research from the housing charity Shelter on Tuesday highlighted the problems faced by many people with no choice but to rent privately in Britain, especially with income modest or in expensive areas
About a third of private renters surveyed by YouGov described living in « poor conditions » with issues such as humidity or pests, and said lack of living space made foreclosure more difficult Some 43% said they had paid too much for the quality of their accommodation
The Prime Minister’s plans did not come out of nowhere, with last December’s Conservative manifesto pledging to « encourage a new market for long-term fixed-rate mortgages that lower the cost of deposits »
But there are still few more details on how this might work, and a big question mark as to whether the incentives to lenders will be big enough The enthusiasm of many banks to offer low mortgages deposit has declined since the coronavirus hit, and some buyers also say they face tougher rules and income controls as well
Andrew Montlake, managing director of London mortgage broker Coreco, said lenders « are currently struggling or unwilling » to offer such loans at 95%
HSBC became one of the last major mortgage lenders to stop offering 95% Value Added Loan (LTV) loans last month He said he was struggling to cope with both low deposits and wider mortgage demand, due to pent-up interest after the first nationwide foreclosure, stamp duty cuts and rivals
The gloomy economic climate has also heightened lenders’ fears about the property market, and buyers with small deposits put them at greater risk if prices fall. Banks set aside billions in case borrowers cannot fully repay mortgages and other loans
« Considering that there is some nervousness among lenders regarding 90% LTV loans, it will be interesting to see if anything comes from this program and how it will be structured, » said Mark Harris, Managing Director of the broker SPF private customers
Prime Minister reportedly asked ministers to consider how a new government mortgage guarantee scheme might work
« Perhaps it will be similar to the Mortgage Compensation Purchase Assistance Program, which ceased in December 2016, » Harris said
This initiative, one of many « Help to Buy » policies, has allowed lenders to purchase collateral on certain mortgages for buyers with deposits as low as 5%, encouraging them to lend It was open to existing homeowners as well as first-time buyers, but it was not available on new homes where other purchase assistance was available
Matthew Fleming-Duffy, principal of another broker, Cherry Mortgage & Finance, said he « saw no problem » in dusting off such a scheme again
One of the differences probably lies in the focus not only on low deposits like under the last program, but also on low monthly payments by spreading them over longer periods. “Going the extra mile in trying to create a market for long-term fixed rates seems very reasonable,” Fleming-Duffy added
The UK government could be exposed to substantial losses if borrowers struggle to maintain their payments and the housing market collapses – something some economists are predicting next year
Under the previous scheme, the UK government offered to pay banks up to 15% of property value if a house was repossessed and sold for less than the outstanding loan
If products are launched quickly, huge demand could also push up short-term average prices in an already booming market, making it harder for other current and future buyers
“Any government guarantee scheme at this level would raise concerns,” Montlake said “There is a question as to why the taxpayer should guarantee more people trying to access the real estate market, which will undoubtedly increase more demand and thus further increase prices »
Laith Khalaf, financial analyst at online investment firm AJ Bell, also said: “There isn’t much that seems to make Britons happier than seeing their home values rise. yet there is a generation of people who are still trying to get a property ladder and unable to
« One has to wonder if government efforts to help Generation Rent have been counterproductive, simply resulting in higher and more unaffordable house prices »
While any low deposit scheme is likely to be popular with those who would otherwise be excluded from buying, there are bigger questions about the likely adoption of longer term fixed rate deals.
« For this to work, the available long-term fixed rates would have to be competitive without onerous bonds – five years at most – and should be introduced at a time when lenders could actually cope with the demand, jee after the recess of the stamp duty ”, he added
Fleming-Duffy also said there should be « concessions » on prepayment charges, which would make it easier for buyers to sell and take out new mortgages.
Meanwhile, owners’ representatives released a statement after the Prime Minister’s speech, stressing that not all « Generation Rent » members wanted to buy
« While we believe that those who wish should have the option of buying their own home, the Prime Minister is wrong to say that tenants cannot turn the properties in which they live into their own homes », said Chris Norris, policy director of the National Residential Landlords Association
Neil Wilson, chief market analyst at Marketscom, noted that if the new program were to target new homes, the government would expect it to stimulate construction. « They think if they pull that leverage out of demand, this will support the supply lever, which is not completely stupid «
Johnson himself, however, acknowledged that there were other problems in Britain’s « broken housing market », pointing to the government’s plans to reform a planning system he called » sclerotic « to stimulate supply
But Wilson added, « Of course the only way to really ‘fix’ the problem is to dramatically increase the supply of housing, which nobody really wants or can do Home builders can’t only find tens of thousands of new brickies, chippies, sparkies, etc. »
Khalaf noted that there was « still a housing shortage in the UK, which creates a permanent imbalance between supply and demand », to the benefit of home builders
The government is also facing calls to prioritize the promotion of social housing Shelter urged ministers on Tuesday to deliver 50,000 new social homes in a £ 122 billion (15 USD8 billion), which would mark a quadrupling of current annual delivery rates
« Our homes are our first line of defense in this pandemic, » said Polly Neate, CEO of Shelter. « The chancellor must be as quick and bold on housing as we’ve seen him work »
Boris Johnson, Mortgage, First-Time Buyer
World news – GB – Generation Buy: What low deposit mortgage plans mean for buyers