Yesterday, Boris Johnson announced his hope to create ‘generation buy,’ helping more young, prospective homeowners get on to the property ladder. The Prime Minister has asked ministers to work on plans to allow more mortgages to be offered with a 5% deposit, as opposed to the average deposit of 15 – 20%. Banks would also no longer be required to ask applicants about the finer details of their earnings and outgoings, which hopes to allow around 95% of loans to be accepted.
At present, low-deposit mortgages are hard to come by. HSBC, one of the last banks to offer low-deposit 90% mortgages, recently restricted their sales in a move that left first-time buyers struggling to find a loan.
Recent data from Moneyfacts showed that borrowers able to offer 10% of the value of a home as a deposit could have chosen from 779 deals at the start of March, but six months later, the choice was down to around 60. Lenders are being stricter about who they lend to amid fears of defaults. Some large lenders said they would not consider applications from people on furlough and who did not have a return to work date.
David Hannah, Founder of Stamp Duty Land Tax specialists, Cornerstone Tax, has commented on whether these prices are sustainable post-COVID and how first-time buyers can enter the market:
“With banks reducing low-deposit mortgages as well as house prices rising, this period could prove extremely difficult for people who want to get on the property ladder. It’s good to see that the government is aware of the issue that so many people today feel completely excluded from the idea of home ownership.
In order for ‘generation buy’ to work, the government needs to offer more in the way of state backing, in order to make this riskier proposition attractive to mortgage lenders. The industry should be encouraging the Government to do more such as Government-backed Extended Negative Equity Risk Guarantee Insurance for mortgage lenders.
It would work like the Bounce Back Loan Scheme with the Government underwriting up to 20% of the property value for five years on properties up to £500,000 to cover the economic uncertainty post-COVID. This would help first-time buyers as the lenders have greater confidence to lend helping boost the market sustainably across the medium term and provide greater economic stability as we recover from the pandemic.”