Prime Minister Boris Johnson sparked concern with lenders and mortgage experts when he revealed he wants to create a ‘Generation Buy’ with the help of 95% mortgages.
His proposed plans are aimed at helping young people to buy homes and get themselves on the property ladder and came ahead of his hotly anticipated Conservative Party Conference speech on Tuesday.
During an interview with The Telegraph, Boris Johnson vowed to “fix the problem of unaffordable deposits” that can often leave young, first-time buyers excluded from getting on the property ladder.
The Prime Minister is expected to turn his attention to a “massive domestic agenda” despite the ongoing implications of the coronavirus pandemic.
“I think a huge, huge number of people feel totally excluded 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,” he told The Telegraph during his interview.
Ever since the financial crash of 2008, banks are required to ‘stress test’ mortgage applicants in order to ensure they’re not borrowing more than they can afford. However the Prime Ministers plans would remove the stress tests allowing banks to offer 95% mortgages.
The Prime Minister stressed in the interview that low-deposit mortgages could be “absolutely revolutionary” for young people. He has allegedly asked ministers to begin work on plans to encourage long-term fixed-rate mortgages with 5% deposits.
Deposit requirements currently can be up to 15% to 20% of a property’s value which can often leave many potential house buyers unable to afford the process.
Last month, the UK government revealed planned changes to England’s shared ownership scheme which would allow more first-time buyers and social housing tenants to part-buy their homes. The move, which will see deposits reduce from 25% to 10%, will allow more housing association tenants to buy a stake in their own homes.
Johnson’s potential new plans would see the stress test replaced with a form of state guarantee however mortgage experts and lenders have questioned whether or not now is the time to be encouraging people to to take out a substantial mortgage.
The coronavirus pandemic has left many people struggling financially and with the furlough scheme coming to an end, lenders across the board are worried that the removal of the stress tests could make it difficult to fully gauge whether a borrower will have the means to make their repayments in the future.