Rishi Sunak tries to support the housing market

This article is part of
Guide to the Budget

Rishi Sunak tries to support the housing market
Credit: Hannah McKay/EPA-EFE/Shutterstock via Fotware

The government has big plans to turn Generation Rent into Generation Buy.

And on Budget day Chancellor Rishi Sunak laid out plans he believes will make this a reality: announcing the launch of a mortgage guarantee scheme and an extension to stamp duty.

The scheme which will be introduced from 1 April, will provide a guarantee to lenders across the UK who offer mortgages to people with a deposit of just 5 per cent on homes with a value of up to £600,000.

Under the scheme all buyers will have the opportunity to fix their initial mortgage rate for at least five years should they wish to. 

The scheme, which will be available for new mortgages up to 31 December 2022, is intended to increase the availability of mortgages on new or existing properties for those with small deposits. 

Several of the country’s largest lenders including Lloyds, NatWest, Santander, Barclays and HSBC will be offering these 95 per cent mortgages from next month, and others, including Virgin Money, will follow shortly after. 

Lisa Martin, development director at TMA Club, says the 95 per cent mortgage market has endured significant challenges during the Covid-19 pandemic, but the Budget promises much-needed support for many borrowers in this area.

First-time buyers

First-time buyers and home-movers form a vital cog in the economy and housing market and government support has been crucial here.

But Martin also argues that the £600,000 threshold as part of the new 95 per cent mortgage guarantee scheme will support many but not all areas of the UK.

She adds: “However, what lenders will be looking to understand once the new scheme starts next month, is whether they will be able to adjust their affordability stress tests to support a greater number of buyers. 

“This is in addition to ensuring that the percentage of their lending is balanced across all loan to value risks.  I hope to see greater clarification on this so that lenders are in as strong a position as possible to serve customer demand for the scheme.”

Nigel Purves, chief executive of Wayhome, says the headline-grabbing 95 per cent mortgage policy is politically astute, but it is a “band-aid on a bullet wound” as it does not tackle the affordability issue.

Mr Purves adds: “The affordability issue for renters goes much deeper than the deposit. Mortgage lenders calculate their lending by multiplying household income – and with the average house price in England coming in at just under £270,000, it means that you’ll need quite a hefty household income to get a 95 per cent mortgage to afford to buy it. 

“If the Government is truly committed to turning Generation Rent into Generation Buy, it must work together with the property industry to raise awareness of innovative ways to help people take their first step onto the homeownership ladder.”