The prime minister has proposed a new scheme which will increase the availability of long-term, fixed rate 5% deposit mortgages in an attempt to get more young people on the property ladder. But will these new plans really make a difference for private renters across the UK? Stylist investigates.
It’s no secret that young people in the UK are struggling to get on the property ladder. We’re a generation of renters for exactly this reason – while some people do prefer to privately rent because of the flexibility it offers, for many people, it’s the only option available at a time when house prices are at record highs.
With this in mind, Boris Johnson’s latest announcement has received a lot of attention from young people across the country. During his appearance at the virtual Conservative party conference on 6 October, the prime minister revealed his plans to transform “generation rent” into “generation buy” by making mortgages more accessible to first-time buyers.
Under the plans, which are yet to be confirmed, first-time buyers would be given the chance to take out long-term, fixed-rate mortgages of up to 95% the value of a home, meaning they’d only need to fork out a 5% deposit. In reality, this means that the proportion of money you’d need to save in order to get a mortgage would be reduced.
When news like this hits the headlines, it can be hard to work out exactly what these changes would actually mean when it comes to our chances of getting on the property ladder. We asked three different housing experts to share their views on what the 95% mortgage scheme would really mean for private renters, and what the current mortgage market actually looks like. Here’s what they had to say.
What does the current mortgage situation look like for first-time buyers?
The coronavirus pandemic has made it harder than ever for first-time buyers to get their foot on the property ladder – and with the ongoing recession causing further damage to the economy, things aren’t looking good.
“It’s a tough time for those wanting to get a foot on the first rung unless they have a sizeable deposit of at least 15%,” explains Johanna Noble, money editor at MoneySavingExpert.com. “Mortgage deals for first-time buyers with a low deposit have been disappearing from the market since the start of the coronavirus crisis. Currently, there aren’t any standard mortgage deals available for first-time buyers with a 5% deposit.”
She continues: “Those with a 10% deposit might struggle too as there are only about 15 standard deals available to them – a fraction on what was available at the start of the year – with several of these being long-term fixed deals where you’d be locked in for up to 11 years.”
How could the 95% mortgage scheme affect our chances of getting a mortgage?
Although on the surface Boris Johnson’s 95% mortgage scheme may sound like a pretty good deal, without a cut to the costs of rent, saving even a 5% deposit may be inaccessible to many private renters
“It was good to see recognition from the prime minister that the UK has a serious housing affordability problem, with young people increasingly giving up hope of ever owning their own home,” says Caitlin Wilkinson, policy manager at Generation Rent.
“However, his solution, introducing 95% mortgages and encouraging young people to borrow even more, will not help the majority of people stuck in the private rented sector.”
Wilkinson continues: “Two-thirds of private renters have no savings at all, and renting is unaffordable for women on an average salary in almost every area of the country.
“For those who do manage to save up for a deposit, this policy will do nothing to bring house prices down, as the prime minister has done nothing to increase the supply of housing. To address the housing crisis, the government must build more genuinely affordable homes, while ensuring that the private rented sector is secure and safe for people living in it now.”
Emma Harvey, director of mortgages at MoneySuperMarket, echoes Wilkinson’s point: “This is a headline-grabbing announcement from the government, and the news will be welcomed by many people looking to buy their first home who can’t get a mortgage – we’ve seen traffic to our site from first-time buyers tail off recently, as lenders have removed mortgages which don’t need a large deposit.”
Harvey continues: “A government-backed scheme to take on some of the risk would mean that more 95% mortgages come back onto the market, but with no detail about how the scheme will work it’s hard to predict this for sure.
“Lenders have a responsibility to make sure the people they are lending to can afford the repayments, simply offering 95% mortgages isn’t a silver bullet. If the housing market goes down people will be at risk of going into negative equity, and that’s an important message for anyone looking to get on the housing ladder to understand.”
What options are currently available for private renters looking to buy?
While the coronavirus pandemic continues to wreak havoc on the UK housing market, it’s looking like we’d have to save up to a 15% deposit in order to be able to get on the housing market in the first place.
“If you can stretch to a 15% deposit – even if it means relying on help – it may be worth doing so,” Noble explains. “This is because many lenders are still offering deals at 85% loan-to-value (where you have a 15% deposit), meaning there will be more deals available, and, at better rates.
“If there’s no way you can get up to 15%, there are still some alternative options available, including getting a guarantor mortgage where parental income (or another relative) is taken into account. This can help you get a bigger mortgage as it’s worked out on a higher income. But these deals are few and far between, so it’s best to speak to a broker to see if any of them are available to you.”
Harvey also recommends using a mortgage comparison tool to help you get an idea of what you can and can’t afford in the meantime.
“If you’re a first-time buyer, you can use a mortgage comparison tool to provide a better idea of what kind of mortgage deals are out there and which ones you might be able to get based on your loan-to-value. Comparing mortgages can also help you get an idea of how much you might be able to afford. You’ll be able to compare the monthly mortgage repayments you’d have to make for each deal as well as information on how flexible the mortgage is.”
Speak to a Financial Conduct Authority registered financial adviser before taking financial advice, and think carefully before making any decision.