At October’s Conservative Party conference, Prime Minister Boris Johnson outlined ambitious plans to get the country moving again, following the coronavirus crisis.
Plans included a relaxation of planning regulations and a commitment to create a ‘world-beating’ green economy, along with a pledge to “turn Generation Rent into Generation Buy”.
To this end, Boris announced the launch of Government-backed 95 per cent mortgages, aimed at those buyers who have no trouble making monthly payments, but may struggle to get the thousands of pounds needed for a standard 15 per cent deposit.
Such products would give 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.
While the details of how the scheme will be implemented are still to be clarified, it is thought that the loans will be guaranteed by the state, while the current ‘stress checks’ on borrowers could be relaxed.
Currently, borrowers have to undergo strict affordability tests when applying for a mortgage, to avoid lenders being hit with a string of bad debts should the economy run into difficulties.
Such checks include assessments of income, expenditure and existing debts, verification of income, a prediction of future income, and 'stress tests' to see if they could keep up with repayments if rates were to rise.
While such mortgages are nothing new, lenders became more cautious over the course of the pandemic, withdrawing most of such deals as recession loomed. Rates on the remaining products leapt from 1.48% to 4.74% - pricing many out of the market.
However, with the housing market already showing signs of bouncing back after people spent the summer locked down in their homes, the expansion of the offer comes at the ideal time, taking advantage of rising house prices and renewed interest.
With the younger generation hit hard by the impacts of the coronavirus – under-25s were first to be furloughed and now make up a third of new Universal Credit claims – initiatives such as this are vital to make sure young people are not once again unable to step onto the housing ladder.
What impact do you think Government-backed 95 per cent mortgages will have on the housing market and first-time buyers? Let us know your thoughts by tweeting us, @ventureprop.