2019 seems a very long time ago given the difficulties we have all faced in 2020, but this was the year that Boris Johnson took the UK to the polls for a general election. One of the proposals put forward in the Conservative Party Manifesto for that election was that the Conservative Party would make it easier for first time buyers to get onto the property ladder. The slogan being “we will help turn Generation Rent into Generation Buy”. In a speech to the party conference Borins Johnson said “We will fix the long-term problems of this country not by endlessly expanding the state, but by giving power back to people – the fundamental life-affirming power of home ownership, the power to decide what colour to paint your own front door.” In this article we take a look at what the government is proposing doing to make this manifesto promise a reality.
One of the biggest obstacles to a first-time buyer getting onto the property ladder is the sheer expense of the process. One of the biggest outlays is the requirement for a substantial deposit. For many potential purchasers, who could otherwise afford mortgage repayments, do not have the ability to purchase a property as they cannot afford to save for the deposit whilst paying high rental fees. It is estimated that nearly 2 million people are prevented from buying a home because they don’t have a large enough deposit. The Government’s plan is to open up the high loan-to-value (LTV) mortgage market to give first-time buyers access to 95% mortgages where they would only need to find a 5% deposit rather than the 15 – 20% currently being required by the banks.
Although the Government hasn’t released any firm details on exactly how they will encourage banks to start lending with high LTV mortgages, it has been reported that one option would be for banks to apply less stringent affordability criteria for first time buyers. These criteria were initially introduced in 2008 after the financial crash, caused in part by lenders giving large loans to those who could not afford them, making the mortgage loan default. In the wake of this crash much more stringent affordability criteria were applied and the banks required buyers to pay a much larger deposit.
Under the new proposal it is suggested that the Government would accept some of the risk associated with mortgage defaults or homes going into negative equity by implementing a guarantee scheme which would protect the bank’s investment should the worst happen.
Clearly it is early in this process and there are many details to iron out, but it does look like the Government is serious about opening up the housing market to first-time buyers to help them to gain a foothold onto the property ladder by reducing the size of the deposit needed to get a mortgage.