PM’s 95% mortgage proposals ‘promising’ but is it too little, too late?

by Mary-Anne Bowring/Mortgage Finance Gazette

Prime minister Boris Johnson’s proposal to introduce long-term fixed-rate mortgages for buyers with 5% deposits has been greeted with scepticism by industry commentators.

The reforms, which the Conservatives first mooted in their election manifesto last year, are aimed at fixing the broken housing system and helping more young people on to the property ladder.

Speaking at the virtual Conservative Party Conference yesterday Johnson said he wanted to create two million more homeowners and shift from a society of ‘generation rent’ to ‘generation buy’.

But there were concerns the proposals, as well as lacking in detail, would not go far enough to support the many first-time buyers who are struggling to afford deposits for soaring house prices.

Paresh Raja, CEO, Market Financial Solutions, said while reform was ‘promising’, he feared it was too little, too late.

“This scheme will not be launched until next year and we still don’t know how it will work in practice,” he added.

“Mortgage delays and denials could rise in the coming months, particularly with the furlough scheme coming to an end and banks seeking to minimise their risk exposure. If not addressed, we could see buyer momentum suddenly coming to a halt.

“Both mainstream and alternative finance lenders need to step up and work with their customers so that they can successfully complete on a sale during the holiday period.”

Mortgage guarantees
Another area of concern was how the risk might be mitigated. There had been some speculation the government would provide a guarantee.

John Phillips, national operations manager at Just Mortgages, said: “Guaranteeing such mortgages with tax payer money cannot be the way to go at a time when the national debt is growing by the day.

“If the government wants lenders to bring back higher LTV mortgages then surely the sensible thing to do is to reintroduce a Mortgage Indemnity Guarantee (MIG) scheme.”

Phillips explained, these were widespread up until the year 2000. They were paid by the borrower and protected the lender against loss in the event of the borrower stopping paying their mortgage.

He added: “While some considered it unfair that the borrower paid the insurance premium it did ultimately benefit the borrower as it ensured a large number of high LTV mortgages.

“If the government really does want to bring back high LTV mortgages this has to be the way forwards as mortgages guaranteed by the tax payer are clearly not sustainable at a time when government borrowing has now exceeded our annual GDP.”

The bigger picture
There was also criticism the prime minister was not looking at the bigger picture in terms of the housing crisis.

Mary-Anne Bowring, group managing director at Ringley and creator of PlanetRent, which provides rental management software, said the government needed to do more to solve the housing crisis as a whole.

She said: “The government’s disparaging talk about turning Generation Rent into Generation Buy ignores the fact that more people are renting and for longer, often as a lifestyle choice, and in today’s footloose society having a mortgage can be as much a burden as a bonus.

“If the government was genuinely serious about fixing the housing crisis, rather than focusing on demand-side subsidies it would focus on boosting supply across the board, with a mix of tenures.

“At a time when banks are pulling higher loan-to-income mortgages due to the profound economic uncertainty that coronavirus has caused, the government risks looking massively irresponsible by calling for their reintroduction and suggesting taxpayers’ money could be used to underwrite them.”

https://www.mortgagefinancegazette.com/market-news/pms-95-mortgage-proposals-promising-little-late-07-10-2020/