If the Government isn’t able to get enough homes built, then the next best thing is to make the homes that do get built a little more accessible to first time buyers. That is what Chancellor Rishi Sunek will try today through his commitment to underwrite 95% mortgages.
The proportion of 25-39 years buying a home has halved between 1991 and 2016. The rise of the renter might seem to some like an unstoppable trend. Yet not for our Chancellor.
It is said that an Englishman’s home is his castle. The British Social Attitudes Survey reports that about 90% of households wish to have a place they own. Us Brits still like owning homes. There is politics to be had in extending the franchise and Rishi recognises this.
Getting your first mortgage is hard
The 95% mortgage is a rare beast. The pandemic has made them almost extinct. There were just eight products available across the board in January.
There is more game to be had at the 90% level. A total of 277 products are currently on offer. The good news is the choice is slowly rising as we move out of the worst of the current crisis. The bad news is this still represents a reduction by around two thirds from pre-pandemic levels. It indicates just how tough life has got for would be homeowners.
High prices and a tight mortgage market mean big deposits. The average deposit for a London first time buyer now sits at a staggering £149,000; compared with the average UK mortgage loan of £175,000. A first-time buyer in London typically pays £402,000 for a home, 90% higher than in 2005.
The problems don’t end there. The smaller the deposit, the higher the price on the loan amount. The table below gives a snapshot for the price you pay for such low exposure.
The GLA report ‘Housing in London’, 2020, finds private renters spend 33% of income on housing compared with 17% for owner occupiers and 30% for social renters. Since 2005, average rents increased by 43%. It means renters really struggle to save for the deposit – at best its reckoned around £3000 a year. That’s a lot of years to get to £149k.
A brave new world
Anything the Government can do to help first time buyers should be welcomed but let us not forget economic history. The last financial crisis had its origins in the subprime mortgage world and Government backed securities.
Mortgage guarantees should be one tool in a greater armoury. That armoury needs to include serious measures to deliver new homes in the planning system, a greater range of housing delivery vehicles and a modern, thriving construction sector. A national strategy which threads all the component parts would be the icing on the cake. Meanwhile, at Pocket we will keep doing what we are doing, building quality homes for starters and keyworkers.
