Speaking at the virtual Conservative Party conference last week, prime minister Boris Johnson promised a return to long-term, fixed-rate 95% mortgages for those buying their first home, in a bid to turn ‘generation rent into generation buy’.
In his speech, Johnson stressed that two million people who could quite easily afford monthly mortgage repayments were not currently able to access the home loans they needed.
While this high loan-to-value finance was readily available in early 2020, many such products have been taken off the market since lockdown and the outbreak of the pandemic. Coronavirus has, of course, also led to banks being more reluctant to support higher-risk loans, and there has also been a huge backlog of enquiries about mortgages since the market reopened.
‘Stress tests’ ditched?
It’s true that no details have yet been supplied on how the 95% mortgages would function in practice. However, in the wake of the 2008 financial crash, the Bank of England brought in ‘stress tests’ which said that first-time property buyers must be able to afford up to 7.26% interest on their mortgages if rates were to increase.
The Telegraph has reported that one option could be for these tests to be abandoned. Instead, the government would itself take on the risk of the higher loan-to-value mortgages, rather than the lenders.
This would help one of the biggest barriers to home ownership – the average £30,000 deposit, while renters typically only manage to save an average of £3,000 a year. (Between 1991 and 2016, the proportion of home-owning 25-to34-year-olds dropped by nearly half from 67% to 34%, reports the Office for National Statistics.)
Effectively, this would replace the Help to Buy mortgage guarantee scheme, withdrawn by the government at the end of 2016, and which gave lenders government guarantees on 95% mortgages.
The latest move from Johnson’s government is based on a report from the Centre for Policy Studies think tank, which said that the deals would be ‘portable’, allowing people to transfer their mortgages to a new home on moving.
Of course, anyone purchasing a property with a lower deposit should be aware that this puts them at a higher risk of entering negative equity if the market value of their home drops instead of rising.
Equally, banks and other lenders could take some persuading to offer the products in these uncertain times.
State of the current market
Anyone buying for the first time with a 95% mortgage will be entering a market that’s currently booming.
The post-lockdown surge in Britain’s property market has seen prices surge up to £17,000 between August and September, representing the fastest growth in four years. Average house prices in September (compared with August) rose by 1.6% to £249,870.
Meanwhile, in August, mortgage approvals leapt to their highest volumes for 13 years, according to Bank of England statistics, as buyers pressed on with purchases delayed during lockdown. At the same time, applications have surged to a 12-year high.
At the same time, major online portals are noticing a significant trend away from central urban districts, especially in London, to coastal and more rural areas as well as leafy suburbs. With home working still pretty much the norm, meaning there’s less of a need to be near transport links, it seems more of us are happier sacrificing the metropolitan lifestyle to be able to enjoy more much-needed space; equally, perhaps lockdown has shown some of us that we need more room.
One property website said searches for homes in smaller towns had doubled.
How we at Oakfield can help
Oakfield Sales Director Kerry Newstead says: “We welcome this proposal for 95% mortgages, although it remains to be seen how these would work in practice. We appreciate how much of a challenge it can be for young people to take that vital first step on to the housing ladder, so would always be glad to see anything that could help them.
“Across our areas of Eastbourne, Hastings and Bexhill, we’ve seen brisk business in all sectors of the housing market since the market reopened from total lockdown. So we know it’s a busy market.
“A home that you’ve bought, not rented, and can make your own, may be more within your reach than you realised. Give the friendly, professional team a call today and we’ll talk you through some options. We’ll spend some time getting to know you, and what you need, and fully understand the frustrations of first-time buyers.”
Oakfield also stands ready to help its buyers throughout every stage of the buying process, and works with a mortgage broker to offer sound financial advice. We always liaise closely with everyone involved in a sale from start to finish, offering support and expert guidance every step of the way.