In a recent speech, the Prime Minister said he would be taking action that could help up to two million first-time buyers get onto the property ladder.

Though he didn’t provide any significant detail of what these measures will be, or when they will be implemented, Boris Johnson did say that the government’s intention is to “fix the broken housing market” and to “turn generation rent into generation buy”.

How mortgages could change

As a result of the coronavirus lockdown earlier this year, financial lenders have tightened some of the rules around mortgage eligibility and it is becoming increasingly challenging to find mortgages with a loan-to-value of more than 90% or even 85%, meaning that first-time buyers would need to save up for a deposit of around 15%. An exception to this is the Help-to-Buy scheme, which offers the option of buying a newly built property with a 5% deposit.

The result of this stance is that it has an unwanted impact on buyers who could afford the monthly mortgage payments but unfortunately don’t have the lump sum of cash needed for a large deposit. The age group most affected by this are those between 20 and 40 years old. So what the Prime Minister has suggested is that a new scheme could be introduced, in which first-time buyers would be offered long-term fixed-rate mortgages with a 5% deposit option.

This could come as great news for many hopeful homeowners, but how will the government achieve this?

More details are anticipated to be released in the near future, but mortgages with smaller deposits would mean financial institutions would be lending more and therefore they would be subject to greater risks – and this is one of the main issues that would need to be addressed in a time of increased uncertainty.

One option the government could counter this issue is to offer some form of ‘state guarantee’, in which it absorbs part of the risk – effectively agreeing to take a portion of the risk should a buyer fail to repay what they’ve borrowed. This is somewhat similar to what the Help-to-Buy scheme offers eligible first-time buyers buying newly built homes.

Where are we now?

According to the Bank of England, the number of mortgages approved to finance house purchases was 84,715 in August 2020, a rise of 28 percent when compared to July and whilst many analysts believe that the property market will remain buoyant over the winter on the back of the pent up demand and incentives offered by the Stamp Duty holiday it will be difficult for the property market to remain immune to the pandemic and without further Government stimulus the current activity levels will be challenged as Spring 2021 approaches.

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