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Finance
6 Oct 2020

Boris Johnson to Launch 95% LTV First-time Buyer Scheme

Mohammed
Mohammed

Prime Minister Boris Johnson wants to introduce another government scheme designed to boost 95% loan-to-value lending, according to an interview in The Telegraph.

It's been a challenging time for people looking to take the first step on the housing ladder lately because there's been a lack of deals for those with a deposit of 5 or 10% due to the pandemic.

The stamp duty holiday also served to help home movers and investors more than first-time buyers, so the latter now have more competition.

With this in mind, you can certainly see why the government is looking to boost the supply of mortgages for those with a small deposit.

More details

While it's early days regarding this scheme, Johnson reportedly intends to remove the stress tests for mortgage applications, replacing them with a 'state guarantee' for lenders.

In The Telegraph Johnson is quoted as saying: “I think a huge, huge number of people feel totally excluded from capitalism, from the idea of home ownership, which is so vital for our society. And we’re going to fix that – ‘Generation Buy’ is what we’re going for.

“We need mortgages that will help people really get on the housing ladder even if they have only a very small amount to pay by way of deposit, the 95% mortgages.

“I think it could be absolutely revolutionary, particularly for young people.”

Analysis 

‘Revolutionary’ seems a strong word from Johnson, considering we already have the Help to Buy equity loan scheme designed to boost 95% lending, though that is limited to new builds.

Removing stress tests would be a controversial move - given that they were put in place with the intention of guarding against risky lending practices that helped spark off and worsen the global financial crisis.

On the other hand many within the property have commented that the tests are too strict, given that people, in some cases, are denied mortgages that would cost less than they are spending on rent. 

Perhaps there’s an argument that things should be loosened for first-time buyers, but there may be fears that this is a slippery slope to mortgage rules becoming overly relaxed across the market again.

Also widening the availability of homes to first-time buyers could serve to push prices up when it comes to small homes and apartments, which is something we saw after the now-defunct Help to Buy mortgage guarantee scheme hit the market in 2013.

Now the government has made public what it’s planning, I’m sure parliament will be keeping a watchful eye on how the property industry and public respond.

If the idea of having another 95% LTV scheme with more relaxed stress tests doesn’t cause too much of an uproar, then I don’t see a reason why it won’t come to the market sooner rather than later.

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