Will PM's 'Generation Buy' idea leave taxpayer liable for £44BILLION?

Will Boris Johnson’s ‘Generation Buy’ pledge leave the taxpayer liable for £44BILLION? Plan to help two million people onto the housing ladder could see Government underwriting chunk of mortgage cost in ‘state guarantee’

  • PM pledged to help millions on to housing ladder in conference speech 
  • He said he wanted to help first-time buyers get 95% mortagages 
  • But that may have to be done by underwriting some of the cost of the loan

Boris Johnson’s ‘Generation Buy’ plan to help two million people onto the housing ladder could see the taxpayer underwrite mortgages to the cost of £44billion.

The worst-case scenario figure stems from his pledge in his Conservative Party Conference speech to help people get 95 per cent mortgages. 

Reducing the size of the deposit could be done by extending a form of ‘state guarantee’ for a large chunk of it, according to the Telegraph.

It’s likely the Government is offering to underwrite this risk as a way to encourage more banks and building societies to start lending to small deposit borrowers again. 

Assuming a house purchase requires a 15 per cent deposit, underwriting 10 per cent for an average £220,000 first home – equal to £22,000 – to leave the buyer requiring five per cent could leave the government liable for £44billion if applied to two million new homeowners – although this a worst-case scenario.   

 The Prime Minister today outlined plans to boost the availability of 95 per cent mortgages

Addressing the virtual conference yesterday, Mr Johnson said: ‘We need now to take forward one of the key proposals of our manifesto of 2019: giving young, first-time buyers the chance to take out a long-term, fixed-rate mortgage of up to 95 per cent of the value of the home – vastly reducing the size of the deposit. 

‘We will help turn generation rent into generation buy.’ 

The Government has yet to outline full details of how the scheme could work. The 2019 Conservative Party manifesto pledged to ‘encourage a new market in long-term fixed rate mortgages which slash the cost of deposits, opening up a secure path to home ownership for first-time buyers in all parts of the United Kingdom’.

David McGrail, Compliance Director at UK-based mortgage broker and advice firm, First Mortgage, said the government could end up underwriting just five per cent of a deposit due to there still being good value in the 90 percent loan-to-value market – meaning a £22billion liability.  

Currently borrowers have to undergo stringent affordability tests when applying for a mortgage – so that lenders are no longer hit with a string of bad debts when the economy goes sour. 

These include assessments of income, expenditure and existing debts, verification of income, an assessment of future income, and ‘stress tests’ to see if they could keep up with repayment if rates were to rise.

The criteria could potentially be relaxed under the Prime Minister’s new plans.  

David Hannah, founder of Cornerstone Tax, said: ‘In order for ”Generation Buy” to work, the Government needs to offer more in the way of state backing, in order to make this riskier proposition attractive to mortgage lenders. 

‘The industry should be encouraging the Government to do more such as Government-backed Extended Negative Equity Risk Guarantee Insurance for mortgage lenders.

‘It would work like the Bounce Back Loan Scheme with the Government underwriting up to 20 per cent of the property value for five years on properties up to £500,000 to cover the economic uncertainty post-COVID. 

‘This would help first-time buyers as the lenders have greater confidence to lend helping boost the market sustainably across the medium term and provide greater economic stability as we recover from the pandemic.’

Shadow housing secretary Thangam Debbonaire said: ‘The Tories have failed over 10 years to increase home ownership.

‘Measures to stimulate the housing market won’t work as long as people don’t have jobs to go to and incomes to spend.

‘Young people have been hit particularly hard by Britain’s jobs crisis, so if the Government wants to help them get on the housing ladder it must get a grip on it.’

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