The Prime Minister Boris Johnson has announced plans for making mortgages and homeownership more accessible. We examine his ideas in more detail and explain how they may help first-time buyers
Some say it was a distraction from #partygate, others hailed it a gamechanger for first-time buyers and housing association tenants. Most think it highlights the dire need for more housing.
Whatever your view on Boris Johnson’s plans to undertake a major review of the mortgage market to find ways to help more people become homeowners there’s no denying he’s on the right tracks.
“We have a ludicrous situation whereby plenty of younger people could afford to make monthly mortgage payments – they’re earning enough to cover astronomical rent bills – but the ever-spiralling price of a house or flat has so inflated deposit requirements that saving even just 10% is a wholly unrealistic proposition for them,” he said.
And it’s hard to argue with that. Indeed, part of the plan is find ways to help first-time buyers by making it easier for them to access low-cost, low-deposit finance such as 95% loan-to-value (LTV) mortgages.
However, mortgage and finance experts who have examined his plans, are concerned there’s not enough housing stock to meet the demand which will inevitably increase when the ideas eventually become reality.
Martijn van der Heijden, CFO at broker and lender Habito, said there was a risk without building more affordable housing, tinkering with mortgage affordability would boost demand for homes which don’t exist – thus pushing up prices beyond the reach of first-time buyers.
Meanwhile, Karen Noye, mortgage expert at Quilter, agreed housing supply was a huge barrier to the success of these plans.
“By [Boris Johnson’s] own admission, there are a healthy supply of high loan-to-value mortgages available so what this review will uncover is anyone’s guess,” she said.
“The crux of the matter is that it is not the mortgage industry that needs fixing but the housing market and its sky-high prices.
“Part of the reason why house prices are soaring is because there are so few properties out there. Build more stock and the scramble for properties, which is pushing prices ever higher will come to a halt. This would in turn help generation rent whose dreams of owning a house are unfortunately just a dream at present.”
She added: “Ultimately we just need to build new homes in areas that people actually want to live rather than soulless out of town developments. Doing this would be far more powerful than tinkering around with ways to help people finance their first home”
The outcome of the review was due to be announced in the Autumn.
Help to buy for benefits claimants
Boris Johnson also announced plans were being put together to enable people to spend their housing benefit to buy a property, something which they are not currently able to do.
His pledge to turn ‘benefits to bricks’ involved changing the welfare rules to enable the 1.5 million who are in work but also on housing benefit to be given a choice to use their benefit towards a mortgage rather than going directly to private landlords or housing associations.
If a family has saved for a deposit to buy a home, the government would, under the proposals, back them with the same housing support they would have used on their rent, to pay towards their mortgage instead.
Those on Universal Credit who are saving for a deposit for a home would also receive help. Currently, Universal Credit is tapered when a claimant has £6,000 of savings or more. If they have over £16,000 the benefit is pulled altogether. However, this rule would not apply to those saving in Lifetime ISAs and Help to Buy ISAs.
The PM also revealed his vision to extend the Right to Buy scheme, launched in the 1980s by Margaret Thatcher, to enable housing association tenants to purchase their home at discounted rates.
Sarah Coles, senior personal finance analyst, Hargreaves Lansdown was sceptical of Mr Johnson’s plans. “Turning housing benefit into homes is easier said than done,” she said.
“So while it sounds like an attractive prospect in theory, until all the details are nailed down, we can’t assume this is going to be a game-changer.”
She was also doubtful the support for those on Universal Credit to save using a LISA would work well.
“Saving for a deposit while receiving benefits is a big ask in any case, particularly at a time when benefits have risen well behind inflation, so people are having to make some incredible difficult decisions in order to make ends meet,” she added.
Martijn van der Heijden questioned how easy it would be to implement the plan for housing benefit claimants.
He said: “As of right now, using benefit income as house deposits will not be in most mortgage lenders’ internal policies.
“So that will require teams of underwriters to look at risk appetites and write policies for, which will take a bit of time and is something that will be decided on lender by lender.”
He also raised concerns about how easy it would be to save using a LISA with the cost-of-living crisis taking hold.
“The earlier you start saving in the LISA, the more you can save, and the more your bonus could be. If this change does come in, it would allow people to build up a home or pensions savings pot, without their universal credit being impacted.
“However, with the rising cost of living, how much low-income buyers are able to save, remains to be seen.”
