Boris Johnson promises 95% mortgages for First Time Buyers
Boris Johnson showed his colours as a true-blue Tory at the party’s virtual conference, vowing to give ‘generation rent’ the keys to home ownership.
“When Covid struck there were millions of people, often young people, who found themselves locked down in rented accommodation, without private space, without a garden, forced to use ironing boards for desks and bedrooms for offices,” the Prime Minister said.
Adding it was a disgrace that millions were forced to pay through the nose to live in a place they can’t call their own, he promised buyers the chance to take out a long-term fixed rate mortgage of up to 95% of the value of the home, griding down the size of a typical deposit.
“Yes, we will transform the sclerotic planning system. We will make it faster and easier to build beautiful new homes without destroying the green belt or desecrating the countryside. But these reforms will take time, and they are not enough on their own,” he said.
The policy was pledged in the party’s 2019 manifesto, and could create two million more owner occupiers, the biggest expansion of home ownership since the 1980s.
“We will help turn generation rent into generation buy. 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,” Johnson said.
Of course, few would disagree on the virtues of homeownership. Mark Hayward, Chief Executive, NAEA Propertymark, said: “We welcome the Prime Minister’s comments today which shows a positive change in tone by promoting a generation of renters to become a generation of buyers. We encourage lenders to come on board and support this initiative to enable first time buyers to enter the property market by future proofing the financial burden many face.
“We want to see intent become action quickly so that first time buyers can make the most of the current stamp duty holiday and continue to stimulate the housing market.”
However, those that remember the subprime crisis might feel a little more nervous about the scheme. Rob Houghton, CEO of reallymoving said: “We support the Government’s efforts to reduce barriers for First Time Buyers and welcome the return of 95% mortgages with caution. High loan to value mortgages do come with risks but there is a place for them in today’s market as long as First Time Buyers are educated and informed about what could happen if prices fall.
“For those who have been saving a deposit for many years this will be welcome news, enabling them to make the first step onto the property ladder, but we would urge people to proceed with caution, consider the risks carefully and think long term about their property choices.
“The Mortgage Market Review, which came into force after the credit crunch, remains in place to protect buyers from the kind of irresponsible lending practices we’ve seen in the past.”
There is also the question of where to put new homeowners while the housing crisis continues to rage. Director of Benham and Reeves, Marc von Grundherr, said: “Creating two million more homeowners is a lovely bit of rhetoric for Boris to fuel market sentiment, but it comes with a clear and obvious problem. Where are they going to live?
“Yes, the affordability of homeownership is a problem at present and providing buyers with a foot up via a smaller deposit will help many to overcome this hurdle. In the more inflated markets such as London, it reduces the deposit required by some £25,000 and so the initial saving is notable.
“However, we’re simply not building enough homes and the Government’s head in the sand approach to this burning issue is going to bring about problems when those securing these new mortgages actually look for a home.
“Unless we address this we will see house prices continue to climb ever higher as a result of this new initiative, to the detriment of those it’s ironically supposed to help.”
The pledge also ignores the idea that many see a mortgage as a ball and chain. Mary-Anne Bowring, group managing director at Ringley and creator of PlanetRent, 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, for the government risks looking massively irresponsible by calling for their reintroduction and suggesting taxpayers’ money could be used to underwrite them.”
Nonetheless, it will at least continue to stir activity in the housing market. Group CEO of Enness Global Mortgages, Islay Robinson, concluded: “While the UK is facing tough economic times this further boost to homebuyer demand should ensure that activity remains strong and house price growth remains buoyant.
“This will not only maintain the health of the regular market but it will also cause a ripple effect that will benefit sellers across the board, even at higher price tiers.
“The UK and London, in particular, remains the pinnacle of homeownership for many high-end international buyers. While this demand has been stifled due to Brexit and the restrictions of the current pandemic, we’ve seen international buyers return as confidence has built in the core segment of the market.
“Ensuring this activity remains strong and prices continue to increase will bring further interest from foreign shores and this will help boost the UK economy on a number of fronts, not just through healthy property price growth.”
So will ‘Generation Rent’ morph into ‘Generation Buy’? Not unless we have ‘Generation Build’ in between…