Are 95% mortgages being brought back?

In a speech last week, the Prime Minister said he would be taking action that could help up to two million first-time buyers get onto the property ladder.

Though Boris Johnson didn’t give much detail of what these measures will be, or when they will be implemented, he did say that the government’s intention is to “fix the broken housing market” and to “turn generation rent into generation buy”.

So here’s what we know, and don’t know, about what was announced.

How mortgages could change

As a result of the coronavirus lockdown earlier this year, banks have tightened some of the rules around mortgage eligibility.

It’s become increasingly difficult to find mortgages with a loan-to-value of more than 90% or even 85%, meaning that first-time buyers would need to save up for a deposit of around 15%.

(An exception to this is the Help-to-Buy scheme, which offers the option of buying a newly built property with a 5% deposit.)

This has an unwanted impact on buyers who could afford the monthly mortgage payments but unfortunately don’t have the lump sum of cash needed for a large deposit. The age group most affected by this are those between 20 and 40 years old.

So what the Prime Minister has suggested is that a new scheme could be introduced, in which first-time buyers would be offered long-term fixed-rate mortgages with a 5% deposit option.

This could come as great news for many hopeful homeowners, but how will the government achieve this?

We’re expecting more details to come out in due course, but we know that mortgages with smaller deposits would mean banks are lending more, which would mean banks are taking greater risks – and this is one of the main issues that would need to be addressed.

One way the government could deal with this is by offering some form of ‘state guarantee’, in which it absorbs part of the risk – effectively agreeing to take a portion of the hit should a buyer fail to repay what they’ve borrowed.

This is somewhat similar to what the Help-to-Buy scheme offers eligible first-time buyers buying newly built homes.

But at this point, until the government publishes something official, any more detail would only be speculation. We’ll let you know as soon as there are any updates.

What was said about planning permission?

There was even less detail given when this was mentioned, but the Prime Minister did promise to “transform” the planning system.

He said the government will make it faster and easier to build new homes without threatening the green belt or countryside.

Earlier this year the government introduced a number of measures with the hopes of simplifying and speeding up the process of applying and granting planning permission for certain projects.

This includes:

• An easier process for homeowners to build additional space above their properties via a fast track approval system.
• A wider range of commercial buildings will be allowed to change to residential use without the need for a planning permission.
• Greater flexibility for commercial properties to be repurposed without applying for permission. For example, a retail shop could be changed into a café or office with less bureaucracy.

The current government is also promoting environmentally friendly homes with the launch of the Green Homes Grant scheme.

Again, we’ll be looking out for any official updates, and let you know as soon as there are more details available.

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