Millions of people are currently having problems saving enough money for a house deposit and this problem was highlighted by Prime Minister Boris Johnson in this week’s virtual Conservative Party Conference (6 October). The PM says that he wants to make things easier for would – be house buyers by making 95% mortgages widely available.
In his address, the PM said that there were two million potential buyers who could afford a mortgage, but were prevented by getting one as they had not saved enough money, required for the deposit. Mr Johnson stated that he is keen to turn ‘generation rent into generation buy’ and would achieve this by increasing the opportunity for house buyers to have long term, fixed rate mortgages for 95% of the property value.
‘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% of the value of the home- vastly reducing the size of the deposit’.
Mr Johnson also said that it was ‘disgraceful’ that numbers of home owners in the under 40s had plummeted in recent years. He described how millions of people have been forced to - “pay through the nose to rent a home which they can’t truly love or make their own”.
An Ambitious Home Ownership Scheme
This will be the largest and most ambitious home ownership scheme since the 1980s and it has has already created much interest. An example of what the 95% mortgage will mean is a property costing £200,000 would require a deposit of just £10,000. The mortgage would be for £190,000.
The government has launched several other initiatives to help people to get onto the property ladder, including the popular ‘Stamp Duty Exemption’ which continues until 31 March 2021. This scheme is available for properties up to £3,000 in value and has certainly helped the property sector to start to recover from the pandemic.
Mr Johnson said that he was making the announcement now about 95% mortgages, as the need for home ownership had become more urgent because of the COVID-19 pandemic and the various lockdowns.
He explained to the conference that many potential property buyers were young and locked down in rented accommodation which often lacked privacy and an outdoor area as well as a suitable place for them to work from home. Whilst many would like to buy their own home, they were prevented from doing so because the required deposit was too large for them to afford.
95% mortgages are nothing new however, prior to the pandemic, they were widely available but in recent months, since the beginning of the pandemic, lenders have withdrawn them. The PM gave no further details about how and when the scheme will be introduced.
Other initiatives introduced by the government to help first time buyers include the ‘Help to Buy’ scheme. In this equity loan scheme which is available to all buyers, people can buy a new-build property with a 5% deposit – which is topped up 20% equity loan, that is provided by the government. The loan is interest-free for five years.
The government plans to re-launch this scheme in 2021, but only for first-time buyers.
Another innovative scheme is the First Homes Scheme in which first-time buyers (and key workers) can buy a new build home with a 30% deposit. This gives the buyers, shared ownership of the property and they pay rent for the portion that they do not own.
The fifth scheme that is currently in place to help house buyers, is the Lifetime ISA. People aged under 40 years, who are saving for a house deposit are being given an incentive to do so. The government is contributing to their savings by £1,000 when they save £4,000 annually. This scheme also helps people who are saving for their retirement.
Mr Johnson stated that he is keen ‘fix our broken housing market’ by building more homes and by making mortgages more affordable, with long-term fixed-rate deals available on a 5 per cent deposit for first-time buyers. He feels that this will give ‘the chance of home ownership and the joy and pride that goes with it to millions who are currently feeling excluded’.