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MHCLG fails to substantiate PM’s ‘two million more owner occupiers’ pledge

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  • 12/10/2020
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MHCLG fails to substantiate PM’s ‘two million more owner occupiers’ pledge
The government has not been able to explain how the proposed 95 per cent loan to value (LTV) long term mortgage policy touted by prime minister Boris Johnson will meet its target of two million more owner occupiers.

 

Johnson re-launched the policy, which was originally part of the Conservative manifesto at the 2019 general election, last week.

He initially trailed it in an interview with the Telegraph before talking further about it during his speech at the Conservative Party conference.

In his speech he said: “We need now to take forward one of the key proposals of our manifesto of 2019 – giving young first-time buyers the chance to take out a long-term fixed rate mortgage of up to 95 per cent of the value of the home, vastly reducing the size of the deposit, and giving the chance of home ownership – and all the joy and pride that goes with it – to millions that feel excluded.

“We believe that this policy could create two million more owner occupiers, the biggest expansion of home ownership since the 1980s.”

 

State of the market

However, questions have been raised about how realistic this target is and whether this number could be reached.

In 2018 and 2019 there were 1.19 million and 1.18 million total housing transactions respectively, with around 350,000 of these being first-time buyer completions, according to figures from UK Finance.

The trade body told Mortgage Solutions that each first-time buyer transaction in these years had an average of 1.5 borrowers, so the number of owner occupiers grew by around 525,000 per year.

 

Housing supply

Housing supply is one of the biggest limiting factors for first-time buyers and the government’s goal is to reach 300,000 new homes completed per year by 2025.

This is a significant increase from the 241,000 completed in 2019 and would be difficult under normal circumstances without builders working within coronavirus-related restrictions.

However, if the additional 59,000 properties were to be reached from the start of 2021 and all those were to go to first-time buyers with all of those using the new scheme to buy a property, that would result in 350,000 additional owner occupiers by the next election at the end of 2024.

Barely one sixth of the prime minister’s two million goal.

 

Stamp duty holiday

First-time buyers are being squeezed at the moment with lenders limiting LTVs, although those that are able to offer higher LTVs are typically prioritising first-time buyers.

Part of the reason for the limits is the scale of demand driven by several factors, including the current stamp duty holiday for all property purchases up to £500,000 introduced on 8 July and which is due to end on 31 March.

But first-time buyers were already exempt from stamp duty holiday on properties worth up to £300,000 with just five per cent paid on the value between £300,001 and £500,000.

A report by the Resolution Foundation noted that although the 8 July stamp duty cut appeared to remove a barrier to home ownership, as most first-time buyers were already exempt from the tax it has taken away their advantage and created more competition among other buyers such as landlords and second home owners.

 

Room to move

It is possible that once the extended stamp duty holiday ends there will be a significant drop off in the market, as seen following the introduction of the surcharge for buy-to-let properties in April 2016.

This could allow first-time buyers to take advantage, but any drop off in activity would likely mean a reduction in the number of sellers and could also hinder first-timers.

But even if the number of first-time buyers were to increase by half from April solely as a result of using the government’s new 95 per cent long term loan, that would be around 188,000 new owner occupiers per year.

And over four years that, combined with the 350,000 new owner occupiers from the potential increase in properties completed would total around 1.1 million – just over half the prime minister’s claim.

There are also questions about whether borrowers would wish to take out such a long-term fixed rate loan and whether the market could make it work.

Mortgage Solutions contacted the Ministry of Housing Communities and Local Government (MHCLG) to ask for an explanation of how the two million figure had been reached.

An MHCLG spokesman said: “The government will set out further details in due course.”

 

 

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