For many, home ownership is the hallmark of a successful economy and the ultimate reward in return for hard work. But many hardworking aspirational people are priced out of home ownership.
Some are fortunate enough to be in a position to call upon the ‘Bank of Mum and Dad’ or an inheritance to fund the deposit on a first home. For the majority of others, particularly those from working and lower middle-class backgrounds, the only option is to save, over a significant number of years, towards a deposit. At a time when the average deposit on a first home reportedly stands at £33,000, the reality is that saving for a deposit in the current climate has become an increasingly difficult task.
It is only natural that families who are able to do so would want to assist their loved ones with getting on the housing ladder. However, whether you are born into a wealthy family with the resources to assist with the initial deposit is down to brute luck. The Conservative Party should level the playing field for aspirational hardworking people without family money to call upon by assisting with the initial deposit on their first home.
Under the guise of Help-to-Buy, the Government should introduce a new Help-to-Buy deposit scheme whereby the government guarantees the percentage of a 100% mortgage that would typically be provided by borrowers as a deposit (5-10%). Such a scheme would assist hardworking candidates who, despite not being able to afford the initial deposit, are otherwise financially capable of meeting mortgage repayments and, most importantly, deserving of an equal opportunity to own their own home.
Those that do not have the ‘Bank of Mum and Dad’ or an inheritance to call upon are left with no choice but to save every hard-earned penny they have towards a deposit.
Nationwide have estimated that it takes the average first-time buyer around eight years to save for a deposit, based on saving around 15% of income per year. Over the last 30 years, deposits have increased substantially in line with house prices. According to the Halifax First-Time Buyer review (2018), the average deposit in the United Kingdom stands at around £33,000, a 71% increase from 2008. Notably, the review highlights that “first-time buyers have become reliant on family assistance”.
The reality faced by many involves a cocktail of high living costs, high rent costs, family-related expenses, student debt and personal debt, meaning that many are caught in the private rental ‘trap’ and unable to save for their first home and their futures. This reality is underlined by the fact that the average age of a first-time buyer currently stands at 31.
The Conservatives have introduced several policies designed to assist first-time buyers with getting on the housing ladder, such as the elimination of stamp duty for a number of first-time buyers along with Help-to Buy schemes. According to the Chancellor of the Exchequer, these policies have assisted around 240,000 first-time buyers with the acquisition of their first home.
High street lenders have also caught on to the issues regarding affordability of deposits. NatWest, for example, offer 5% deposit mortgages and 100% mortgages which can be guaranteed by family members who possess sufficient assets. Innovative new start-ups, such as Unmortgage, have developed alternative ways to assist first-time buyers. Unmortgage offer what could be described as a ‘part own, part rent, co-ownership’ structure where the first-time buyer provides a 5% deposit and 5% of any costs associated with buying a property, with Unmortgage financing the rest.
As each of these products require either a minimum 5% deposit or family wealth, they fail to adequately address the underlying issue of affordability of deposits and the reality is that this is where prospective first-time buyers would most appreciate assistance.
One solution lies in identifying a bank that is prepared to offer 100% mortgages to suitable applicants who meet a set of predefined eligibility criteria, but who are not able to fund a deposit, with the government guaranteeing the equivalent of the deposit (5-10%) that a first-time buyer would typically provide.
The eligibility criteria could include, by way of example, standard affordability checks, strong employment history, track record of having made rental payments at a similar level to any potential mortgage repayments over a number of years, minimum salary and credit and criminal record checks.
The Government should launch this product under the banner of its flagship Help-to-Buy programme. As the Help-to-Buy brand is already established, minimal upfront funding would be required to launch this product meaning that this scheme would be a cost-effective policy for the Conservative Party to pursue.
The suggestion above is not dissimilar to the discontinued Mortgage Guarantee Scheme. Under this scheme, first-time buyers were able to get a mortgage with just a 5% deposit. If borrowers defaulted on their mortgage repayments, the government would compensate the lender. The Council of Mortgage Lenders said that this scheme had worked “exceptionally well” and default rates, to date, have proven to be low across the various home ownership schemes established by the government, meaning that such schemes have not proved costly to the taxpayer.
Under the new proposal, a bank offering a 100% mortgage would not be taking on any more risk than in a traditional lending scenario. Borrowers under this scheme would be as attractive to lenders as traditional borrowers with deposits, meaning that such borrowers should be in line to get the same deals as those with deposits.
Over time, buyers could gradually contribute towards the cost of the deposit alongside their mortgage repayments. This would steadily increase their equity in the property and simultaneously reduce the government’s risk.
It may be that the current economic and political instability stemming from Brexit means that this is not the right moment to introduce a product of this nature. That said, the Government should look at this idea in more detail and consider the significant impact a Help-to-Buy deposit scheme could have on the lives of hardworking taxpayers looking to buy their first home.
Alex Sprake is a solicitor, Conservative activist and centre-right thinker. He has a particular interest in progressive, centre-right ideas that have the potential to benefit the working and lower middle class. The views expressed in this article are those of the author, not necessarily those of Bright Blue.
