9 October 2020

Turning generation rent into generation buy

Prime minister Boris Johnson wants to help first-time buyers onto the property ladder by offering state-backed 95 per cent loan-to-value (LTV) mortgages. Talking to the Conservative Party conference this week, he suggested that long-term mortgages for those with modest deposits was the answer to ‘help turn generation rent into generation buy’.

He also asked Ministers to draw up plans which could see ‘stress tests’ removed. These were introduced after the financial crisis of 2008/09 and are designed to ensure borrowers can keep up with payments if interest rates were to rise. If these stress tests are removed, it would make it easier for applicants to qualify for these mortgages.

Despite the lack of detail as to how this would all actually work in practice, Boris’ talk of 95 per cent home loans created quite a bit of noise. There is some nervousness among lenders regarding lending at 90 per cent LTV and above, with some of the bigger lenders pulling out of this market in recent months. Those lenders who are still offering 90 per cent LTV have stringent criteria and funds are often limited, with deals pulled with short notice once the money runs out.

It will be interesting to see if anything comes of the proposed scheme and how it will be structured. Lenders are worried about the surge in property prices and whether these will fall dramatically once unemployment starts to rise. This could leave those with high LTVs in negative equity and potentially without a job after the unwinding of the furlough scheme.

On a more positive note, there are a couple of lenders who are currently looking at 90 per cent LTV mortgages so hopefully we may see more entrants at this level, easing the pressure on lenders already offering such deals.

When it comes to mortgage pricing, it is a tale of two markets – sub-80 per cent LTV rates are fairly static and not falling, but above 80 per cent LTV they are still rising. First-time buyers keen to take advantage of the stamp duty holiday before it comes to an end on 31 March will therefore find that they will have to pay more for their mortgage, and would perhaps welcome the prime minister’s scheme as a way of getting on the housing ladder without having to find such a big deposit.

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