In recent years, government support for first-time buyers has been a ‘natural’ part of the market and one that has very rarely elicited any kind of negative reaction.
Whether it has been stamp duty holidays, or access to government support schemes such as Help to Buy, there has continued to be a political focus on helping new homeowners onto the ladder and a willingness to use the public purse to do this.
It might be anticipated therefore, that the recent announcement by Boris Johnson that his government will introduce a ‘new’ scheme focused on increasing the availability of high LTV mortgages – with perhaps government guarantees – and that these products will be long-term fixed-rate mortgages, would be met positively.
But, so far at least, there appear to have been more questioning voices than those fully in support. Now this might be down to the current lack of detail on this scheme, but there are also perhaps some more fundamental arguments at play here – ones which undoubtedly play into the current Covid-19-induced situation about who should be at the front of the queue when it comes to government support.
These are serious questions to be answered, and they need to be placed in the context of the performance of the wider UK economy, the recently-announced increase in unemployment rate growing to 4.5%, and of course the understanding that we may not be through the worst of this yet.
Even in a housing context there are strong arguments to suggest there may be more ‘deserving’ individuals than would-be first-time buyers. What about those currently stuck in flats and apartments who can’t move because their building’s cladding has not been deemed safe? What about those in leasehold houses with onerous terms who are unable to get mortgage finance or sell their property on?
The argument might run that they are more deserving of government support than those who are not yet in a position to purchase their own home. After all, this is support for something that hasn’t happened yet, against those who are already in such a position.
These, of course, are judgment calls for the government and it would appear that turning ‘Generation Rent’ into ‘Generation Buy’ is a priority it is willing to push over others. That being the case, then our next step is to question whether the scheme – as much of what we know of it – is the right one? Will it get two million individuals, currently in the private rental sector, into home ownership as Johnson suggested it would?
Well, that is the two million pound question because it is likely to need some considerable changes to be introduced, and indeed, some considerable changes of strategy and heart on the part of the lenders who are going to be asked to participate.
Clearly, the number of high LTV products is down considerably at present and there are many reasons for this, but even before Covid-19 and the lockdown, the levels of high LTV competition were hardly at record levels. Regulatory and prudential requirements have meant that lenders have needed to stress test affordability at higher rates, there’s been the soft cap on lending over 4.5 times income, and the requirement to hold more capital on mortgages over 85% LTV. There will need to be changes made here for any scheme to be successful.
Add in the Covid-19 situation, an ongoing recession, fears about house price levels, incomes dropping, rising unemployment and the like, and its perhaps no surprise that lenders are rather more risk averse than many would like them to be. The government will have a considerable job to do in asking lenders to take greater risks with high LTV borrowers, even within its own scheme. After all, there’s an argument to suggest that greater high LTV mortgage lending will leave both the borrower and the taxpayer’s money used here exposed.
Others will argue that pushing demand along is the last thing the government should be doing, and instead the concentration of investment and resources should be focused on increasing the supply of affordable property.
These, of course, are judgment calls to be made but fundamentally the following question has to be answered: Is this the best use of taxpayer’s money? Especially when we have private mortgage insurance schemes that can do this job perfectly well, able to deliver the greater number of high LTV mortgages the government wants to see, and help ignite competition in the marketplace, whilst assuaging lenders on their risk concerns.
Government involvement will always happen, but this time we must wonder whether – given everything else that is going on and the private option available – this is the right scheme at the right time.
Patrick Bamford is business development director at AmTrust Mortgage & Credit