Help to buy? What about help to rent?

Rishi Sunak made the government’s attitude to home ownership crystal clear in his budget speech on March 3rd 2021. In glorious technicolour he announced that the government’s priority was to metamorphose the generation rent chrysalis into a beautiful generation buy butterfly.

To achieve this ambition, he would be ensuring that 95% mortgages were going to be available once more. This is good news, of course, to anyone wanting to buy a home because the number of 95% LTV (loan-to-value) mortgage products have plummeted in less than a year from almost 400 to five. This is data provided by Moneyfacts.

Photo Igor Myznik

So, what’s the deal here?

Obviously, banks and building societies have been very cautious throughout the worst months of the pandemic and any mortgage applicant would have to bring their cash in numerous sacks to be able to secure finance. The government rely so much on the housing market that stopping first time buyers from stepping onto the property ladder stalls everyone’s move and affects the whole construction industry.

Banks need guarantees and the government are offering

Sunak’s response was to offer lenders an opportunity to buy a guarantee on a small proportion of the mortgage. This was actually between 80% and 95%. This would mean in practice that should the borrower experience any difficulty or hardship and find their property repossessed then the government would step in and pay back that percentage of any losses the lender may have experienced. This scheme has initially found favour with quite a number of the biggest players in this niche including Lloyds, NatWest, Santander, Barclays and HSBC.

Photo Ermand Khoury

The new scheme will start during April 2021 and end in December 2022

This initiative aims to encourage banks and building societies to offer 95% mortgages again. It will do this by giving them the chance to buy a guarantee on the portion of the mortgage between 80% and 95%. If a borrower gets into financial difficulty and their property is repossessed, the government will cover that chunk of the lender’s losses. The scheme will open for new mortgage applications in April and run until the end of 2022.

Photo: Charles Deluvio

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

Photo: Soroush Karimi

Who might qualify for a 95% mortgage?

1.    Your household has to be eligible for credit but show that a higher deposit will be a stretch too far.

2.    This scheme is for new applications in the 20-month period planned by the government

3.    You can’t apply for a 95% mortgage if you are planning to purchase a buy-to-let or second home

4.    Your property will need to have a ceiling price tag of ￡600 000

5.    Your mortgage will be a repayment mortgage, not interest only

6.    You will need to pass the basic rules regarding affordability and be prepare for a credit check.

7.    Interest rates are yet to be decided but expect to pay above 3% but less than 4%

Stamp Duty

The other elephant in the room is stamp duty. In the budget speech the Chancellor said that the holiday that was due to end at the end of March 2021 will now be extended until 30th June. This is only for properties bought and sold in England and Northern Ireland. Right now, no stamp duty will be paid on properties up to ￡500 000 but on the 30th June 2021 the threshold will drop to ￡250 000 until the 30th September. After that we will return to the normal threshold of ￡125 000. The caveat is that first time buyers will be helped as after June their threshold will be ￡300 000.

Photo:Maurits Bausenhart

What about Renters?

Home ownership is not necessarily the holy grail for every person. There are a number of groups for whom home ownership does not even appear on their radar. Home ownership can mean being trapped by the property and/or the investment. According to the Nuffield backed Resolution foundation study published in September 2020, negative equity is actually a lower risk than it has been with house prices rising rather than falling in past crises. However, with unemployment looking likely to rise substantially there may be cause for concern, This is especially true as interest rates will not bail out an ailing house market as they are already incredibly low. The report goes into detail about what might happen should the Office for Budget responsibilities prediction of an 8% fall in house prices and downside risk of 16% fall come to pass. Certainly, anyone experiencing negative equity will find it very difficult to shift a property with a mortgage and should unemployment force a house move this could be problematic.

Photo: Bench Accounting

Will home ownership compromise lifestyle too much?

It is quite interesting that the government is wanting Gen. Rent to become Gen. Buy, at this time of increased uncertainty. Will home ownership compromise lifestyle too much? What about those people who have experienced renting for years and like the lack of responsibility when it comes to repairs and renovations? The flexibility and convenience to move quickly to any part of the country, or even abroad can be extraordinarily attractive to some. Also renting can make it possible to live in areas where it would be impossible to find an affordable property. Also, those who feel safer renting from a housing association, for example, with a reduced rent may never feel that buying a house is a road down which they would like to travel.

Photo: Jay Haych

At Howsy, we are very keen to see renting as a choice you make to suit yourself

It is not in binary opposition with buying a property. There are so many reasons why renting might be an excellent choice at different times in life. After all, a house purchase is a massive responsibility in terms of mortgage (as appropriate) and also repairs and upkeep. There has to be money set aside for the unexpected like a leaking roof or a chimney pot needing repointing. There may also be chimneys to clean; fences to be painted and repaired, annual boiler service, decoration, updating, the list is never ending.

To encourage everyone to buy is perhaps a little optimistic and maybe even a tad misguided. What is required is a levelling of the playing field so that renters do not feel like they have made a sub-standard choice. More status for renters is required. What do you think?