Subscribe to receive expert analysis directly to your inbox from the View from Westminster newsletter.
Receive our complimentary email newsletter, View from Westminster.
The government is contemplating a bold plan to assist first-time home buyers by providing assurance for mortgages that only require a 1% down payment.
According to The Independent, the prime minister and chancellor, Jeremy Hunt, are considering a daring strategy to attract young voters who are having difficulty buying a home.
According to government sources, a plan supported by the Treasury to assist those in the “generation rent” demographic is being considered as a major proposal for Mr. Hunt’s spring budget on March 6th.
Real estate professionals cautioned that the proposed solution, although intended for short-term gain, may have adverse effects by driving up housing costs while failing to address the critical lack of available housing.
The bold move would greatly expand upon the government’s previous Help to Buy program, which allowed British citizens to buy newly built properties with just a 5% down payment.
Banks and building societies still typically require deposits of at least 10 per cent, sums which young renters continue to struggle to save.
Sunak and Hunt are attempting to appeal to younger voters during an election year.
However, if we support lenders in offering mortgages with 99% loan to value (LTV), where borrowers only need to put down a 1% deposit, it would enable many renters to purchase a home with a deposit of only a few thousand pounds.
If someone were to purchase a house at the current UK national average price of £290,000, they would only have to pay £2,900 through the proposed government program.
However, certain property professionals cautioned against the concept of 1% down payments, stating that it could lead to an overheated market and inflated housing costs.
Jonathan Rolande, the creator of the National Association of Property Buyers, cautioned that this “temporary solution” would only drive up demand and not effectively increase the number of new homes being built.
Mr Rolande stated that in the immediate future, there may be a period of happiness where young individuals who were previously unable to do so, will now have the opportunity to climb the ladder of success and be content.
Providing individuals with funds to purchase homes results in heightened competition for a limited supply, ultimately driving up housing costs. This cycle repeats itself in a few years, leading to continued housing shortages.
The specialist stated that the primary concern was the decrease in the availability of new homes due to limitations in planning, and the increasing costs of materials and labor in recent years.
Angela Rayner states that the Conservative party has not adequately addressed the problem of housing supply.
Angela Rayner, the deputy leader of the Labour party, stated that the Conservative government has failed to address the issue of affordable housing and has made no effort to fix the broken planning system. This inaction has resulted in a generation of young individuals giving up on their hopes of owning a home.
When asked about the Conservative suggestion of requiring only 1 percent deposits, the prominent Labour member stated to The Independent: “The reality of the situation is that a comprehensive housing policy cannot be achieved without a concrete strategy to increase the availability of housing.”
Sarah Olney, the Treasury spokesperson for the Liberal Democrats, expressed disbelief at the Conservative party’s attempt to use home ownership as an election issue, especially considering their role in causing mortgage rates to increase.
In September 2022, Ms. Olney mentioned the detrimental mini-Budget presented by Liz Truss and Kwasi Kwarteng. It caused a significant impact on the financial system and reportedly resulted in a loss of £30 billion for the country.
Major lenders are hesitant about the concept of 1% deposits, as there is a higher chance of default and repossession. As a result, the government may need to guarantee a significant portion of the mortgage to compensate for any potential losses.
Although 99% mortgages may assist in the struggle to gather enough funds for a deposit, they do not solve the problem of first-time buyers needing to meet affordability requirements for their monthly payments.
The Conservative party, led by Rishi Sunak, is facing difficulties in gaining support from younger voters. Recent polling by YouGov shows that only 10% of individuals under the age of 50 plan to vote for the Conservative party in the next general election, with 60% supporting the Labour party instead.
Experts in the housing industry have cautioned that lower down payments may lead to an increase in housing costs.
Mr. Hunt has received a warning against attempting to influence voters with potential budget changes in March that could have negative effects on the economy in the future.
There are reports that the chancellor is contemplating eliminating inheritance tax. However, experts predict that the top 1% of the population would reap half of the savings, resulting in a potential loss of £15 billion per year for the government.
Mr. Hunt has received criticism for his recent Budget pledge to increase access to free childcare. Sector leaders are raising concerns about the pledge falling apart due to the disorganized failure to secure funding.
Although there are some concerns, Steve Turner, who is the executive director of the Home Builders Federation, is overall supportive of the proposed new program aimed at increasing home ownership.
“We would greatly appreciate any measures to aid first-time home buyers. Our country has become one of the least affordable for young individuals to purchase property in comparison to other developed nations,” he stated.
The head of the construction sector stated: “Construction can only occur if there are buyers able to make purchases. The limited availability of high loan-to-value products in the market is limiting demand, leading builders to decrease their production.”
Campaigners advocating for “generation rent” are urging for assistance to aid those facing challenges in becoming homeowners.
The government has received criticism from the construction industry for not implementing a replacement for its Help to Buy program, which concluded in March 2023. This initiative allowed the government to lend up to 20% of the property’s value to buyers in England, while also supporting 5% deposits.
Mr. Hunt has extended the mortgage guarantee program until 2025 in an effort to promote 5% down payments. However, only a small number of lenders are currently providing these options for new construction projects.
Mr. Turner stated that we are requesting a government assistance program, specifically for first-time home buyers, which will increase the number of buyers for newly constructed homes.
The Generation Rent organization stated that it is appropriate to strive for increased home ownership among those with limited funds, but cautioned that programs for minimal down payments must be meticulously planned.
CEO Ben Twomey advised Mr Hunt to prevent oversaturating the market with financial options that would create competition for the limited number of available homes.
The advocate stated that it may “drive prices up and ultimately harm the chances of individuals who choose to rent from becoming homeowners.”
He also urged the government to come up with ways to help renters buy from any landlords who are struggling with high interest rates and are looking to sell. “We should have the opportunity to buy our landlord out on favourable terms.”
A representative from the Treasury stated that the current mortgage guarantee program, which offers mortgages with a 95% loan-to-value ratio, has already helped over 39,000 households purchase a home. This accounts for more than 86% of the total number of first-time home buyers.
They stated: “During the autumn statement, the program was prolonged for an extra two years in order to offer more assistance for individuals purchasing a home for the first time.”
Source: independent.co.uk
