Can Affordable Mortgages Create Generation Buy?


In an announcement that will have many people re-evaluating their chances of stepping onto the property ladder, the Prime Minister Boris Johnson has proposed a scheme that will assist first-time buyers in arranging a mortgage.

It is hoped that FTBs will be able to get a mortgage with only a 5% deposit. The soundbite around this scheme is one that aims to turn “generation rent” into “generation buy”.

Speaking at the virtual Conservative party conference, the Prime Minister hopes to create an additional two million property owners. He spoke at length of the need to fix the broken housing market, and how we can help young people step onto the property ladder.

This scheme could be costly for the Government

Industry specialists predict the measure could cost tens of billions of pounds.

The Prime Minister said; “But these reforms will take time and they are not enough on their own. 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.

The Prime Minister also said; “We believe that this policy could create two million more owner-occupiers – the biggest expansion of home ownership since the 1980s. We will help turn generation rent into generation buy.

More information is needed about this mortgage scheme

While this announcement is eye-catching, and will provide some people with hope about entering the housing market, there wasn’t a great deal of detail or further information. Before people will be able to determine whether this proposed scheme is of benefit to them, they will need more details as to how the plan will work in practice.

Many industry bodies and lenders will also be keen to know whether the Government intends to underwrite the mortgages.

In their 2019 manifesto, the Conservative Party pledged to “encourage a new market in long-term fixed rate mortgages which slash the cost of deposits, opening up a secure path to home ownership for first-time buyers in all parts of the United Kingdom.

As you would expect, there have been many responses to the announcement made at the Conservative party conference. The Economic Editor of the BBC, Faisal Islam, tweeted; “If its 2 million people, & average size of a first-time buyer mortgage is £185,300 – and market currently serving 75% LTV and below with cheap rates, but not 95% – back of the envelope, that’s several tens of billions of guarantees to cover possible losses.

As for property market and mortgage industry professionals, there have been some initial remarks made. Rob Hougton is the CEO of reallymoving, and he raised concerns that high loan to value mortgages can be risky.

Rob Houghton said; “For those who have been saving a deposit for many years this will be welcome news, enabling them to make the first step onto the property ladder, but we would urge people to proceed with caution, consider the risks carefully and think long term about their property choices. The Mortgage Market Review, which came into force after the credit crunch, remains in place to protect buyers from the kind of irresponsible lending practices we’ve seen in the past.

While there are new challenges to overcome in the housing market, people shouldn’t consider arranging a mortgage to be an impossible task. However, it is vital people accept help and assistance from professionals in the field. If you are keen to arrange a mortgage, speak to a mortgage broker or experienced adviser and make sure you are fully equipped to make an informed decision.

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