Home ownership for first-time buyers: a private sector solution to a political challenge

Alex Sprake

27th Feb 2018

The challenge for prospective first-time buyers is one of the hottest topics in politics and, without question, one of the biggest challenges facing the Conservative Party.

In August 2017, I wrote an article for the TRG and commented on the fact that existing Help to Buy Schemes do not currently resolve the underlying issue for first-time buyers – being the affordability of deposits. I proposed the introduction of a new Help to Buy scheme to assist first-time buyers with their deposits.

The British dream of home ownership is closely aligned to the values of the Conservative Party and the idea that if you work hard and do the right thing you should be able to get on in life and provide for yourself and loved ones. Part of this deal involves the dream of homeownership. But many are priced out of homeownership due to the difficulty of saving for the initial deposit in the current climate.

There is a private sector solution to this problem: the Government should seize the political initiative and underwrite the equivalent of the deposit under a 100% mortgage for some first-time buyers – and it should do this under the name of Help to Buy.

According to the Halifax First-Time Buyer review, the average deposit in the United Kingdom is around £33,000. In London and the South East, this increases to £106,500.  It is increasingly difficult to save for deposits amid rising inflation, student debts, consumer debts, and high rents, and deposits have increased substantially in line with rising house prices.

The only source of support for first-time buyers without family money or inheritance are schemes such as Help to Buy. Although existing schemes and policies (including the Help to Buy ISA and the abolition of stamp duty for first-time buyers) are to be applauded in their own right, they do not assist prospective buyers with the initial deposit – and the reality is that this is where prospective first-time buyers really need assistance.

The solution lies in finding a bank that is prepared to offer 100% mortgages to suitably creditworthy and hardworking candidates (but who are not in a position to fund a deposit) in partnership with the Government’s flagship Help to Buy programme.

Under the banner of Help to Buy, the Government could guarantee a percentage of the amount advanced (the 5-10% of the cost of a home that would typically be provided as a deposit).   This would mean that a bank offering a 100% mortgage would not be taking on any further risk than in a traditional lending scenario, making it more attractive to lenders to offer this product.

This suggestion is similar to the abolished Mortgage Guarantee Scheme where the borrower would provide 5% of the deposit and the Government would guarantee the rest of the deposit.  The retail lending market is already adapting to the issues of affordability and a number of products are now available. NatWest, for example, offer 5% deposit mortgages, while innovative new start-ups like ‘Unmortgage’ provide alternative ways to fund first-time home purchasers provided that first-time buyers have a 5% deposit.

But even these products do not address the primary issue of the affordability of deposits.

The proposed new Help to Buy mortgage, with the deposit underwritten by Government, should be made available to prospective first-time buyers who are creditworthy and who meet a set of predefined eligibility criteria but who are not in a position to fund a deposit and who do not have family money or inheritance to call upon.

The eligibility criteria could include a requirement that the candidate provide evidence of making similar levels of rent payments for a predefined number of years, along with credit, landlord and salary references.    Such criteria should ensure that this product would only be accessible by those stuck in the ‘private rental trap’ but who are otherwise financially capable of making mortgage repayments.

This would be a cost-effective policy for the Conservative Party to introduce as the Help to Buy brand is already established and, in any event, default rates for mortgages acquired in connection with Help to Buy are low, so the likelihood of the Government having to pay out on any guarantee is low.

It is only right that the Party continues to look for ways to assist first-time buyers – and introducing a new Help to Buy product such as described in this article would do just that.

As a Party, and in particular as One Nation Conservatives, we should strive for a property-owning democracy which would provide hardworking families with the security they deserve.

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