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Generation Buy – PM pledges the return of 95% mortgages

Boris wants to turn generation rent into generation buy. But what's the plan and will it work?

Generation buyYou’ve probably heard of Generation Rent before; swathes of young people residing in rented accommodation, priced out of homeownership.

It’s something that the Prime Minister acknowledged in his speech at this week’s Conservative Party conference, where he said, “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.”

He went on to say that while many people are happy renting, most have an overwhelming instinct to buy.

But “Many of them simply can’t – not because they can’t afford the mortgage, but because they can’t afford the deposit.”

He plans to change all that. The PM promised that, “We will help turn generation rent into generation buy.”

How will the government achieve “Generation Buy”?

This is where things get a little vague.

There is a new target: the government will create two million more owner-occupiers by 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

But there is no detail yet on how this will be achieved.

There are suggestions the government could encourage lenders to create long term, 95% mortgages by taking on some of the loan risk through a form of state guarantee. This would be another form of the (now defunct) Mortgage Guarantee Help to Buy scheme, where the government underwrote 15% of the mortgage, making lenders feel confident enough to offer a 95% mortgage.

The government could also look at encouraging lenders to reduce the stress tests and number of affordability question asked of first time buyers. This would require action from the Bank of England and Financial Conduct Authority.

See what mortgages are available and how much you can borrow online now

Why the focus on 95% mortgages?

At the beginning of 2020, 95% mortgages already were a firm feature of the mortgage lending landscape. There were around 400 95% mortgage products at the start of the year according to the Financial Times, but less than a handful of niche products remain. Lenders are pulling these products to reduce their exposure to riskier first-time borrowers as the UK enters a recession.

This sudden lack of credit availability means many people can’t afford a home. A 5% deposit on an averagely priced UK house of £235,000, is £11,750. But at the moment, most mortgages are only available if you have a 15% deposit saved, which requires a whopping £35,250 deposit. Hence the government wanting to bring 95% borrowing back.

However, there is also a real risk that any government intervention further fuels the housing market and only pushes up house prices, making homes less affordable and putting homeowners at risk of negative equity.

Commenting on the proposal Paula Higgins, Chief Executive of the HomeOwners Alliance said that, “We welcome the sentiment to help struggling first time buyers, particularly those that had their deposit ready but haven’t been able to buy because of the disappearance of the 90% and 95% mortgage options.”

“Lenders understandably want to avoid over-exposure to risk at a time of economic downturn. But we hope the government can encourage lenders to take a more personalised approach to lending. Many first-time buyers are in jobs that continue to be as stable as they were 9 months ago.’

On the suggestion of a new form of Help to Buy mortgage guarantee scheme, Paula added, “First time buyers are almost always better buying on the open market rather than through a complicated government scheme – if they can. Long term mortgage borrowing often means higher rates and less flexibility which may not be right for young first time buyers. We have asked the government for more detail.”

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Leave a comment (11)* Required

  1. Shared ownership

    Comment by Natalie — October 15, 2020 @ 3:40 pm

  2. I would like to buy my first home through the new government scheme of generation buy. Can you please advise me on how to go about with this.

    Comment by Vijay Mitra — October 13, 2020 @ 9:41 am

  3. I’m interested in more information on the 95% mortgage scheme please

    Comment by Donna Jagger — October 12, 2020 @ 8:31 pm

  4. Me and my husband have been renting for almost 10 years, we want to buy a house/flat but can’t save a deposit as we don’t earn enough. We can obviously afford the mortgage – how do we sort this???

    Comment by Louise — October 12, 2020 @ 3:01 pm

  5. No help for retired to buy a new home…would love to buy my partshare but can’t raise a small mortgage….even with enough income…is there a unseen reason?

    Comment by Sue — October 11, 2020 @ 11:00 am

  6. Oh i forgot ,right to buy and buy to let both big mistakes

    Comment by Paul johnson — October 11, 2020 @ 8:51 am

  7. Why aren’t they building council houses ??????

    Comment by Paul johnson — October 11, 2020 @ 8:48 am

  8. What is needed is housing for all groups in different financial bands in all areas. Buying into a lifetime asset may be viable for some but everyone and those who cant afford it need alternatives that are not punitively inflexible or expensive relative to earnings. This scheme is not the solution. Government usually tries to recover costs through ‘insurance or other premiums and the poorest remain locked out.
    Houses can be built or self built cheaply, land can be made available at non inflated prices through reform and local planning management to a national scheme. Other countries have greater renter security and costs and less of an assumption and financial structure that makes domestic property a constantly rising asset class. We need price stability or slow reduction relative to average wages, better renter security and price control, government structures to direct financial institutions away from yoyoing of home finance supply. In other words a long term, cross party, properly conceived and planned housing policy. This will be yet another half baked scheme where banks make money and the young and hardworking but not wealthy are ultimately screwed.

    Comment by Andrew Snowdon — October 9, 2020 @ 8:37 am

  9. I would like to have the chance to buy Frome my housing association as I was a.council tenant as well regards Linda

    Comment by Linda Dawn Gillard — October 8, 2020 @ 8:17 pm

  10. I should like to sign up to your Newsletter. Thank you..

    Comment by Marjorie Power — October 8, 2020 @ 7:47 pm

  11. New government scheme.

    Comment by L — October 8, 2020 @ 7:18 pm

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