Could 5% Mortgage Deposits Create a ‘Generation Buy’?

Throughout the Coronavirus pandemic, the property market has been hard hit, particularly for those hoping to get on the property ladder for the first time. However, at the start of October, during the annual Conservative conference, Prime Minister Boris Johnson promised there will soon be 2 million more owner-occupiers.

How will this happen? Well, the PM is introducing 5% mortgage deposits for first-time buyers in the hope of transforming ‘generation rent’ into ‘generation buy’.

The fact that homeownership among under-40s has plummeted in recent years was described as ‘disgraceful’ and he said he wants to ‘fix our broken housing market’ by building more homes and making them more affordable.

What Do You Need to Know About 5% Mortgages?

5% mortgages have been available for a number of years, however, following lockdown, many lenders retracted their offering as these low deposit loans were seen as too risky in a time where many people were losing their jobs, being furloughed, or simply were unable to move due to local restrictions, and there were fears should housing prices and the economy drop.

Then changes in August meant that purchasing a property with a 5% deposit would no longer be possible without the use of a government scheme such as Help to Buy.

For many, that meant purchasing a new home was no longer affordable and they relinquished themselves to renting for longer.

Details about this new 5% deposit mortgage scheme are limited, but many believe it will not come into force until 2023 when the new Help to Buy schemes comes to a close. It is suspected that no great detail will be shared before April’s Budget Statement and the end of the stamp duty holiday.

Rumours are rife about whether this will mean a relaxation of affordability stress tests which lenders use to decide which applications are successful, and which are not. Johnson has said that the government will adopt some of the loan risk in the form of a state guarantee, so many are naming this scheme ‘Help to Buy 3.0’.

What Does This Mean for the Industry?

Overall, low deposit mortgages are good news for the industry as purchasing will become much more affordable and will cause greater movement. First-time buyers will be able to get onto the ladder and developers are likely to sell more, but demand for rental properties could drop.

This shake up will, however, mean that regulations introduced following the 2008 crash will need reforming. Risky mortgages with tiny deposits or even loans worth more than a property’s value were blamed as contributing to the previous collapse, therefore safety measures will need to be implemented to ensure this does not happen again.

We predict that the government will have to sweeten the pot to encourage lenders to take part as high loan to value lending is not strong.

What If You Want to Buy Before Then?

Of course, not everyone can afford to wait until 2023 for this scheme to be introduced. So, if you have struggled to find a mortgage on the high street, contact our friendly and experienced first-time buyer mortgage brokers.

We have access to specialist lenders and build deals for complicated and non-standard incomes, as well as for those with poor or low credit scores. So, let us make financing your first home as simple as possible.

Article By Chris Evans

November 4th, 2020

Chris heads up the specialist mortgage team which encompasses first charge mortgages, buy-to-let finance and second charge loans.

Chris has spent the last 17 years gaining experience in mortgages, protection and secured loans with roles at Legal & General, Nemo and Mortgage advice bureau giving him a broad understanding of the property finance markets.

Having Joined the Pure Group in 2017 he has worked with Ben to establish and grow the 1st and 2nd charge proposition exponentially in a short period of time. Chris has overseen the recruitment and development of an extremely experienced team of employed and self employed advisers that continues to deliver year on year growth.

See more articles by Chris

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