Is it enough to address the housing problem?
Labour has announced plans to permanently implement a scheme aimed at ensuring the availability of low-deposit mortgages for first-time buyers, if it wins in the upcoming general election.
The scheme involves the government acting as a guarantor for a portion of a home loan to encourage lenders to offer low-deposit mortgages. The Labour party’s plan, branded as Freedom to Buy, aims to enable over 80,000 young people to enter the housing market within the next five years.
Labour asserts that making the scheme permanent will assist young people who are currently struggling in the private rental sector or finding it difficult to save for a home deposit, thereby preventing them from being locked out of homeownership.
A mortgage guarantee scheme, initiated by the Conservative government in 2021 under then-Chancellor Rishi Sunak, has been extended until July next year by current chancellor Jeremy Hunt.
Labour leader Keir Starmer (pictured) has pledged to transform the aspiration of homeownership into a reality, saying they would be “on the side of the builders, not the blockers.”
“A generation face becoming renters for life,” Starmer was quoted as saying in a BBC report. “My parents’ home gave them security and was a foundation for our family. As prime minister, I will turn the dream of owning a home into a reality.”
The existing scheme permits lenders to buy a guarantee on a portion of mortgages, meaning that in the event of a house repossession, the government compensates some of the lender’s losses. The Treasury designed this programme to boost lenders’ willingness for high loan-to-value lending, thereby lowering the deposit requirement for buyers.
However, brokers have noted that borrowers must still demonstrate their ability to afford mortgage repayments, not just accumulate a deposit, as mortgage providers typically lend only to those with adequate regular income, regardless of the government guarantee.
“There are two main barriers to home ownership: firstly, the deposit, and secondly, affording the repayments,” stressed Rob Houghton, founder and chief executive of reallymoving. “The problem with this scheme is it solves one but exacerbates the other, because buying with a 5% deposit leaves you with a 95% mortgage to service at today’s higher rates.
“Low deposit mortgages are a small part of the solution, and they will be useful to a proportion of first-time buyers in locations such as the Midlands and the North where house prices are lower, but if Labour plan to put home ownership front and centre, they’re going to need to come up with more than this.”
Labour’s plans, unveiled on Thursday evening, also include reintroducing housing targets, expediting planning permissions on brownfield land, and prioritising “grey belt” developments. The party claims these initiatives could lead to the construction of 1.5 million homes.
Jeremy Leaf, a north London estate agent and former RICS residential chairman, welcomed the announcement, noting its potential benefits for first-time buyers and the housing supply.
“But for us, just as important is the ambition to increase housing supply and ease the planning system,” Leaf said. “Sadly, we have heard similar announcements from both main political parties in the past where the end result doesn’t match the rhetoric.
“In our view, there is little point in coming to the aid of first-time buyers unless there is sufficient choice of properties for them. Otherwise, the outcome will simply be further house price inflation, which will make it even more difficult for young people coming along in future years.
“Certainly, we would like to see more detail but we are also pleased that housing has finally seemed to be making an appearance in the election debate and not before time. There are many difficult decisions which need to be taken to improve the balance between supply and demand and particularly of affordable housing, including more balance in the system.”
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