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PM’s plan for low deposit mortgage scheme gets mixed response from brokers

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  • 05/10/2020
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PM’s plan for low deposit mortgage scheme gets mixed response from brokers
Boris Johnson’s plan to encourage a wave of 95 per cent mortgage lending to help young people on to the housing ladder has been met with a mixed response from mortgage intermediaries.

 

Mortgage brokers said any initiative that supports first-time buyers was welcome, but facilitating low deposit borrowing will not help those buyers in the most expensive property markets in the UK.

Over the weekend, Johnson shared his plans to create ‘Generation Buy’, in a interview with the Telegraph ahead of the start of the Tory Party’s virtual conference.

Speaking to the newspaper he said: “A huge number of people feel totally excluded from capitalism, from the idea of homeownership, which is so vital for our society.”

His solution to fixing the problem is to help them on to the property ladder with a small deposit, as few banks continue to offer home loans to borrowers with less than a ten per cent deposit. And those that do have limited their availability to avoid being swamped by demand.

Jane King, mortgage and equity release adviser at Ash-Ridge Private Finance, said: “I know a lot of advisers are a bit nervous of this idea but I am all for it under the right circumstances.

“In London and the South East where I advise, the deposit is always the main obstacle to home ownership even for would-be buyers with decent salaries.

“It’s easy for those who are well off or who have access to family support to be ultra-cautious but for everyone else, anything that offers help has got to be welcomed.”

 

Another scheme could help buyers

Stuart Powell, managing director at Ocean Mortgages Plymouth, agreed the availability of low deposit mortgages was a key driver of the housing market.

“The property chain cannot continue without first-time buyers,” said Powell.

“Only one lender, Nationwide, has stood tall throughout the Covid period and should be commended for doing so, although maintaining its service levels has been a struggle.”

Powell said the reasons given by lenders for not joining Nationwide, and the few other banks and building societies stepping in and out of that market, was the expected fall in property prices next year and the resource-heavy nature of high loan to value which was a struggle with bank staff working from home or on furlough.

He added: “A new government scheme such as Help to Buy could be the answer, although this scheme has been fraught with difficulties.

“More innovation such as intergenerational mortgages or promoting the ability of parents and grandparents to release equity from their property to gift to their children may be a better answer.”

 

Mortgage availability is misdirection

But allowing borrowers to lay down a deposit which is a fraction of the property’s value, will not help young households who will still be priced out of some parts of the market, said Richard Campo, managing director of Rose Capital Partners.

Since the government unlocked the first of the UK’s housing markets in mid-May, after being shut down since March, pent-up demand saw home movers start to drive up prices which were already out of the reach of many first-time buyers.

By August, Nationwide heralded house prices had hit a record high. The stamp duty holiday, which allows buyers to purchase a home without paying stamp duty on the first £ 500,000 until 31 March, has helped to maintain the momentum.

“The focus on mortgage availability is misdirection,” said Campo. “The issue is that not enough new homes are being built, and the ones that are being built do not help first-time buyers.

“Property in the UK has, for decades now, been moving up in value far more quickly than wage inflation. Unless any government commits to a serious and thought-out house building programme, it is only nipping at the edges of the problem.

“Even if you fixed the mortgage availability issue if the property on the market is out of reach of the buyers income it is a pointless task.

“The issue is that housing stock is just too expensive for the majority of people in their twenties and thirties. This is a very complex issue that just focusing on high LTV mortgages does not fix.”

 

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