Boris Johnson has said that he wants to turn ‘generation rent’ into ‘generation buy’ – but landlords shouldn’t be fearful of his intentions.
Speaking at this year’s virtual Conservative Party conference, the Prime Minister said he wants to help people get onto the property ladder by boosting the availability of long-term mortgages for those with a small deposit.
It’s easy to see why this might alarm landlords, as such proposals could lead to lower demand from tenants.
However, on closer examination, it seems that those who rent out properties have no reason to be concerned.
There are many advantages of renting, but perhaps the main one is the flexibility it can offer.
Buying a property can turn out to be a relatively illiquid investment, as it can take months to buy and sell it as an asset. This is unlike renting, where it’s relatively easy to move from one house to another.
Indeed, owning a home can be highly inconvenient, particularly for those looking to move to a different area due to a job change or relationship breakdown.
As such, being tied into a long-term mortgage deal may not be attractive to some first-time buyers, regardless if this is the only way they can get onto the property ladder.
What’s more, many banks have withdrawn their mortgages for those with a small deposit amid the coronavirus pandemic. And Help to Buy, a popular existing scheme for those with only a five per cent deposit, is due to come to an end.
Lower deposit mortgages have been withdrawn due to concerns about unemployment.
If people lose their jobs and stop buying houses due to affordability issues, house prices will fall. In turn, this will leave those who bought with a small deposit in negative equity - where the value of a property is worth less than the mortgage on it.
For this reason, banks don’t want to take unnecessary risks by giving loans to people who can’t afford to repay them.
Some banks may end up marketing the new low deposit mortgages proposed by the government – but in practice, they may refuse applications and cherry-pick only the most credit-worthy borrowers.
Mark Hayward, chief executive of NAEA Propertymark, said: “We encourage lenders to come on board and support this initiative to enable first-time buyers to enter the property market by future proofing the financial burden many face.
“We want to see intent become action quickly so that first-time buyers can make the most of the current stamp duty holiday and continue to stimulate the housing market.”
Kevin Shaw, group managing director of Residential Sales at LRG, said: “While the Government’s announcement is great news for many, and will certainly help the property market too, it must be made clear as to how it will be made possible as to turn ‘generation rent’ into ‘generation buy’ in one fell swoop is no easy task.
“The Government will need to assure mortgage providers that these are calculated risks that are worth taking.”
What do you think about the government’s latest plans for first-time buyers? Let us know in the comments below.
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