Generation 'buy'


Government’s ‘generation buy’ scheme includes pledge of 95% FTB mortgages

We all know the housing market has proved a thorn in the side of many Primer Ministers over the years. It wasn’t too long ago that Theresa May made it a ‘personal mission’ to sort out the housing market and give First-Time Buyers (FTBs) the opportunity to take the first tentative steps on the housing ladder.


With the obvious financial implications of coronavirus, we outlined last month, that many mortgage lenders are now asking for a much larger deposits in order to counter any issue with repayment due to a change in the borrowers circumstances. However, speaking at the virtual Conservative Party conference at the beginning of October, Prime Minister, Boris Johnson announced FTBs will be able to buy with a 5% deposit once again, under new proposals for a government-backed loan.

“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 per cent of the value of the home — vastly reducing the size of the deposit.’’ 


The Prime Minister stated in his speech that there are up to two million people who could afford the monthly costs of mortgage repayments, but who currently could not afford the current deposit amount. This lead the PM to declare their intention to turn “Generation Rent into Generation Buy.”


At the beginning of 2020, there were a number of high loan-to-value products on the market for potential buyers to take advantage of. But, as already mentioned, lenders not only withdrew these from the market as the pandemic took hold of businesses as well as jobs, but due to a backlog of mortgage enquiries, when the market reopened banks considered these loans too risky. 

It is currently unclear as to how the scheme will work, but there is an indication that ‘stress tests’ (stringent checks that were put into place by lenders after the financial crash) could be removed. This would mean the financial risk to the lender would now be with the government. At present, the interest rate is an historic low of just 0.1%. However, there has been talk of negative interest (click here for Kevin Gray’s analysis of what negative interests mean) from the Bank of England, and the potential that if interest rates go the other way, that borrowers will not be able to keep up with payments as they rise.


Similar schemes, such as Help to Buy have benefitted the housing market in the past and seen a surge in FTBs buying their first house. Until more concrete plans are announced, it is unknown what take-up there may be on such a scheme.