Last Monday, the government launched a new scheme designed to help buyers onto the housing ladder by encouraging banks to lend up to 95% of a property’s value.
This 95% mortgage guarantee scheme has been dubbed by the chancellor as a transformative way to “turn generation rent into generation buy”, yet while the scheme itself is welcome news, the exclusion of new builds means that it will have a much more limited impact that many have anticipated.
With 95% mortgages from some of the country’s largest banks being refused to those who intend to purchase new build properties, there is a risk of a drop in Britain’s annual housing supply figures. Schemes such as Help to Buy have incentivised the purchase of new properties by offering buyers an equity loan but this is set to end in 2023, effectively locking housebuilders out of the new mortgage guarantee scheme. The overall number of affordable homes for first-time buyers is already incredibly low, with failing to reach its target of 200,000 starter homes by 2015.
Given that incentives for new builds are being removed, it has never been more important to ensure supply can keep up with demand. As interest grows in the 95% mortgage guarantee scheme, we may expect rapid inflation of house prices, which will affect first-time buyers at its core. That impact has been laid bare by the numbers from Halifax last week, showing that the average house price is now £252,765, so a 5% deposit under Help to Buy or the 95% mortgage guarantee scheme would still require buyers to have saved £12,600 plus legal fees; an extortionate hurdle for those who struggle to save whilst renting.
This issue will become even more apparent when the furlough scheme comes to an end when millions will likely face the threat of redundancy. Despite government incentives, it is very likely that mortgage companies will continue to only accept offers made by those in stable employment.
Privately funded providers of affordable housing can continue to play a significant role in boosting the overall number of homes for first-time buyers, helping to meet demand from those on social housing waiting lists. Crucially, moreover, these schemes do not rely on government funding.
Rentplus is the leading provider of rent-to-by schemes. It enables people to rent new build properties at a discounted market rate, with the option to purchase the home after a set period of time. Tenants are then gifted a 10% deposit at the point of sale to ensure homeownership is achievable. It is an alternative and often overlooked scheme that can complement government-funded schemes such as 95% mortgages and help-to-buy.
A 95% mortgage guarantee scheme alone is not enough to address the huge number of aspiring homeowners, who remain unable to access the funding they require.
With banks refusing to lend to new-builds, a lack of supply will inflate house prices, thus widening the affordability gap that the scheme has set out to tackle.
It is vital that we look at alternative ways to widen access to homeownership, ensure demand is met and mitigate inflation. Rent-to-buy schemes that tackle affordability gaps and demand for new builds can go a long way in relieving this issue.
