5% deposit mortgages are here without Government footing the bill – what will this mean for the economy and house prices?

5% deposit mortgages are here without Government footing the bill – what will this mean for the economy and house prices?

Halifax has stepped forward and announced it’s now offering 5% deposit mortgages for new builds. This is a huge move from one of the UK’s biggest lenders, one which could send shock waves through the industry. By cutting the deposit needed for new build homes by half, buyers could get on the ladder with as little as ￡4,000.

This isn’t the first-time lenders have embraced these kinds of mortgages of course. Since last year, major players such as Barclays, HSBC and Santander all agreed to provide mortgages to those with little in the way of a deposit.

However, these offers all came through the Government’s 95% mortgage guarantee scheme. Under this scheme, the state underwrites the loans, taking away some of the risk for lenders. Halifax is now doing all of this without Government support. Undoubtedly risky, but it shows there’s enough confidence in the future to shoulder the potential downsides. 

Halifax addresses societal issues – but is this wise?

The cynics among us would argue this is being done just to get more customers, with the only real objective of any business being to make money. And to a certain extent, they’d be right. But traditionally, I’d say most people turn to the Government to tackle social woes. This could be one of the rare instances where the private sector puts itself in harms way for the public good.

While appearing to be open to a range of buyers, Halifax specifically said it’s trying to help get first-time buyers on the ladder. Getting younger generations on the housing ladder has been an economic goal for a long time now. Various administrations have promised to tackle this with limited success.

Who knows, with Halifax taking this bold step, perhaps it’ll create a domino effect. Maybe we’ll see other lenders provide their own low deposit mortgages. Coming just in time for the end of the Help-to-Buy equity loans scheme. Before first time buyers get too excited, we’ll need to mind what may happen to prices.

Despite the economy struggling, demand for new-build homes is skyrocketing. Crest Nicholson and Bellway, two of Britain’s biggest house builders, have seen their sales rates jump in recent months. But, in what is fairly typical nowadays, demand is still outstripping supply.

In fact, Berkeley, London’s biggest house builder, warned new build supply could halve in the capital over the next few years. If we find ourselves with a wave of new buyers with fresh funding - chasing diminishing levels of supply - prices will only have one way to go.

Could this be the first step in tackling other problems coming our way?

If we could just crack the supply and demand issue though, this could really bode well for the wider economic problems coming our way. Declining birth rates has emerged as the newest economic problem to be scared about. People are having fewer children, with living costs being blamed as a key driver of this. Young couples are unlikely to even think about starting a family without a home to call their own. Raising a child in a house you can be evicted out of will be unpalatable to say the least.

I’m betting having healthy levels of supply could even help the retirement world. Ask any financial planner for their main piece of advice and they’re likely to tell you to invest more into your pensions. It’s well established that, as a nation, we’re not setting enough aside for our later years. But if you’re a youngster desperate to get into the housing market, all your saving efforts are likely to be focused on a deposit. Once that’s ticked off, perhaps attentions can then be turned to pensions.

There’s no getting around the fact we’re all property obsessed in the UK.  And there’s good reasons for this. Owning a home has helped entire generations move up in the world and take a stronger stake in society. Helping the next generation onto the ladder could refocus minds onto some of the bigger issues we’re facing.