Prime Minister Boris Johnson has vowed to help millions of young people get on the property ladder as he outlined plans for a new low-deposit mortgage scheme.
Mr Johnson said he wants to turn “Generation Rent” into “Generation Buy”, with the new scheme aimed at benefiting first-time buyers across the UK.
What is the ‘Generation Buy’ scheme?
The PM announced plans to introduce a new five per cent deposit mortgage scheme for first-time buyers, helping young people who cannot afford a hefty deposit to get onto the property ladder at a lower cost.
The scheme is intended to help fix the UK’s “broken housing market” and turn a generation of renters into buyers, creating around two million new homeowners.
Mr Johnson said he believed a “huge” number of people felt excluded from home ownership in the UK and vowed to “fix” the issue with the new low-deposit scheme, which will see the government take on some of the loan risk in the form of a state guarantee.
Previous research has revealed that the average person spends up to 10 years saving for a house deposit, leading many to venture down the route of renting instead due to the high costs required.
The PM said that by introducing long-term, fixed-rate mortgages of up to 95 per cent of the value of the home, it would “give the chance of home ownership and all the pride that goes with it to millions who currently feel excluded.”
Speaking at the Conservative virtual party conference on Tuesday (6 October), he said: “We will help turn generation rent into generation buy.
“We will fix the long-term problems of this generation not by expanding the state, but by giving power back to the people.
“The life affirming power of home ownership. The power to decide the colour to paint your own front door.”
The government has yet to reveal specific details about the scheme, including when it will launch, but it is expected to create two million more homeowners.
What deposit do first-time buyers typically need?
Before the pandemic broke out in the UK, it was possible for first-time buyers to buy a home with a five per cent deposit, but almost all of these mortgage deals have since been withdrawn.
More than 1,000 low-deposit mortgage deals have vanished from the housing market in the past six months, according to findings by Moneyfacts.co.uk, and by early September, there were just 76 deals for borrowers with a deposit of 10 per cent or less.
By comparison, in March there were 1,184 mortgages at 90 per cent, 95 per cent or 100 loan-to-value available. This amounts to a fall of 1,108 deals in a six month period.
Deposits now tend to be between 15 and 20 per cent of the price of the property on average.
First-time buyers have also been faced with difficulty in joining the property market due to strict affordability checks, even though they could afford the repayments.
At present, the amount buyers are allowed to borrow is typically limited to around 4.5 times their annual salary, even if they can afford the funds for a deposit.
A version of this article originally appeared on our sister site, Yorkshire Evening Post.