First-time buyers will be able to buy with a five per cent deposit once again under new proposals for government-backed 95 per cent loan-to-value mortgages announced today.
Speaking to the virtual Conservative Party conference, Prime Minister Boris Johnson said: “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.
“We will help turn Generation Rent into Generation Buy.”
Mr Johnson said there are up to two million people who could afford mortgage repayments but who cannot currently get home loans.
This was a combined result of a backlog of mortgage enquiries from buyers the minute the housing market opened up again and the economic uncertainty arising from the pandemic making banks unwilling to back riskier loans.
Although no details on how the scheme might work have been released, the Telegraph reported that one possibility is for banks to remove the stringent stress tests introduced after the financial crash.
These are designed to assess whether a buyer will be able to keep up mortgage repayments should interest rates rise from their current historic low of 0.1 per cent.
Instead of the stress tests, the Government could guarantee these higher loans, taking on the risk instead of lenders.
A similar scheme was introduced as part of the Help to Buy programme in the wake of the 2008 financial crash when banks and building societies withdrew high loan-to-value mortgages. Before that, buyers had been able to access 100 per cent loans.
Buying a home with a low deposit can put the buyer at greater risk of negative equity should the property market fall rather than rise.
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