Government to help borrowers buy with 5% deposit
New government plans could see public money used to help first-time buyers borrow at 95% loan-to-value.
The government has today confirmed it is to step in to help first-time buyers access the housing market, with a raft of plans making up a £400 million property initiative.
Let’s take a look at what the government wants to do:
Building more homes
It’s no secret that across the nation we are not building enough properties to meet the demands of a growing population (and, perhaps more importantly, the changing demographics of the UK). In 2010-11, 121,200 new homes were built, a 6% fall on the previous year, the lowest number of homes built in peacetime since the 1920s.
To address this, the government wants to give a helping hand to construction sites where work has stalled due to cash issues, but otherwise everything is ready to go. A new ‘Get Britain Building’ fund will be established, from which developers can apply for funding. In order to get their hands on the money though, the developers will need to meet certain criteria, such as building a certain number of affordable homes.
An extra £50 million will be slapped onto the £100 million already set aside for refurbishing empty homes as well.
Underwriting mortgages
The more controversial aspect of the plans though is the promise to underwrite a small percentage of mortgages for new-build properties.
The government has acknowledged that one of the biggest issues first-time buyers face is getting together a sufficient deposit. In fact, figures from the Council of Mortgage Lenders earlier this year suggested the average deposit required from first-time buyers now totalled more than an average person’s annual salary. That's more than £30,000.
The idea is that buyers will then be able to borrow 95% of the property’s value, with the government and developers underwriting some of the risk.
Flogging social housing
A third strand of the government’s plans regards the selling of council housing to tenants, an idea first launched under Margaret Thatcher and her Right to Buy scheme. This offered a significant discount to social tenants to buy their council house, and so take that first step onto the housing ladder.
The scheme was continued under Labour, but now the coalition wants to reinvigorate it by offering discounts of up to 50% in order to entice tenants into buying the property. The proceeds will then be used to build more homes in the area.
Building the right type of property
First, let’s start with the good. It’s undoubtedly a good thing that the government wants to do something to spark housebuilding again. We don’t build anything like enough properties, and that’s just exacerbating the existing problems. You end up with too much demand, which pushes prices up further, and locks yet more people out of the housing market.
However, it’s not just enough to build more properties. There are actually plenty of empty properties already. The problem is that nobody wants them, as they are the wrong type of property for that area. It’s not enough to simply build for the sake of building – the new homes built under this scheme need to meet the specific needs of the relevant areas.
Helping borrowers
It’s also a good thing that the government has realised property is a tad on the expensive side, hence borrowers’ issues with getting deposits together.
But rather than helping property prices fall back to an affordable level, these measures will merely prop up first-time buyer demand, meaning that prices, at best will stay at their current level. Not exactly the answer to our problems.
Really, the big winners are developers and lenders. For years now lenders have viewed the asking prices of new-build properties with scepticism, refusing to lend at high loan-to-values on them, making it harder for developers to shift them. This solves both of their issues. I'm not convinced it really helps borrowers though.
Who needs social housing, anyway?
As for selling social housing, at a discount, in order to raise cash to build more cheap homes, I have to confess I’m a bit flummoxed. What exactly is that supposed to achieve? Answers on a postcard.
So what do you think of the government’s plans? Will they help first-time buyers? Let us know your views via the comment box below.
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Who needs social housing anyway? - Well there are plenty of folks who do and the simple task of selling existing occupied social housing properties to the occupier releases cash to builds new social housing properties to soak up the demand. It also then replaces the rent lost when the existing stock is sold and the circle is completed.What it does importantly is: A. Provides much needed housing B. Provides jobs to the unemployed in the building trades C.Provides an inflow of t ax to the government from these newly employed people
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I feel this initiative is a mere drop in the ocean. I speak from not only my own experience but the knowledge there are millions like me, relatively low-paid but not a 'priority' for council/HA housing, who have no hope of getting even a 95% LTV mortgage at current prices. I earn less than £16,000 p.a. (plus benefits/tax credits) for a full time week but seemingly fall between two stools as I am not unemployed yet I have no hope of earning enough to buy a home. I'm not interested in greedily grabbing assets for the record, I just want security of tenure.
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Well as an ex banker and a fully qualified mortgage underwriter/adviser I believe that the government's assistance will be appreciated by many to help them buy their homes. There are also other schemes which are available to assist other people wishing to buy their own home. As for the government underwriting these mortgages I personally would want to know if the staff will be CeMAP at least and if the government will take any kind of equity share in the homes to be bought. The government needs to give clear guidelines. They can't just pull something out of a hat and expect it to work as they always do.
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30 November 2011