Budget 2021: Mortgage guarantee to help buyers with 5% deposit

[dowie]

https://www.bbc.co.uk/news/uk-56218952

A mortgage guarantee scheme to help people with small deposits get on the property ladder is set to be announced at next week's Budget.

The government will offer incentives to lenders, bringing back 95% mortgages which have "virtually disappeared" during the pandemic, the Treasury says.

Surprised there isn't a thread on this already given there are some quite vocal posters on the subject of housing and affordability - particularly people who resent paying landlords when they could be making the same payment on a mortgage...

For people who hate the fact that they're "throwing money away" every month to some landlord when they could be paying the same amount towards a mortgage instead this seems perfect... Of course, with only a 5% deposit you could easily end up in negative equity should prices drop a bit and lose the flexibility of being able to move house but that's the clear trade-off here, you can avoid that by sticking with the landlord and letting them take on that risk instead.

For personally, this might help prop up prices for a little bit, I don't want to sell my place right now but quite likely will within a couple of years so it's great if there are more buyers available for a bit with minimal deposit needed. On the other hand, post-Covid, we could have all sorts of issues in the future and obvious risks are obvious... (granted at least we're not in the EU/eurozone).

Would be interested in the thoughts of some of the more vocal property commentators - will you look to take advantage of this scheme?

 

[dowie]

There is, it's in Speakers Corner.

Ah, just saw that thread, albeit with a rather vague thread title. Anyway, I'm not posing some general political question/inviting a general debate re: governments encouraging borrowing but rather, on the basis of previous GD threads, I'm asking about property and what posters think of this particular scheme.

 

[dowie]

Not sure about this, my gut response is I don't like high LTV being available especially in a period of economic instability, arguably part of the last financial crisis was due to 'bad debts' like at Northern Rock etc. That said, maybe having a guarantor de-risks this a bit (or does it, if the state is underwriting it...?)

Yup they need to be careful with affordability, the previous financial crisis had more than just low deposits to blame - there were liar loans, mixing in risky mortgages with others to spread around/disguise the actual risk. There was a bit of early wokeness involved too - pressure to increase loans to African Americans etc... even though they weren't necessarily affordable.

This is just dealing with the deposit hurdle - a common complaint people have is that they have been renting for years, paying as much in rent as they'd be paying for a mortgage, never missed a rent payment and yet can't get a mortgage thanks to lack of deposit.... ergo are, in their eyes, throwing money down the drain. This removes that hurdle, of course, they then do need to appreciate that they will be the ones taking on actual risk re: house prices too but the choice is there for most people - they can actively choose to carry on renting or to buy, they're not forced into just renting and claim to be "throwing money down the drain", they're now actively paying someone else to take on that risk and for them to have a bit more utility in being able to move more easily etc...

So, it's a terrible idea then yes?
No, we have a much bigger deposit than 5%. I certainly would never entertain the idea of taking on a 95% LTV as a FTB.

So you currently find some utility in renting - your landlord is actually providing a useful service to you?

You have a bigger deposit than 5% but have chosen not to buy right? I got the impression in other threads that you were a bit bitter about handing over money to some landlord yet you don't seem to be willing to take on that financial commitment yourself either?

I'm not hoping anything, and the action I will be taking (in the mid-term) is to leave a country where self-interest is the only game in town. I find it so depressing. People in this country have no social conscience at all. Not even a little.

Seems like a lot of projection there tbh... and a bit of entitlement re: where you think house prices should be, they're expensive in your area because lots of people want to live there.

I mean the obvious solution to this would be to simply look beyond your current town or county, moving to an entirely new country comes with its own set of issues, expenses but fair play if you actually do it.

 

[dowie]

The 450k hard limit is ridiculous. You're either a first time buyer or you're not. It doesn't matter where you live, everything is relative. You have to ask yourself why the government is putting in arbitrary limits/penalties simply for saving money that I have already paid tax on once.

Haven't you been moaning about landlords for years? Now you want to spend seemingly over half a million on a property? It seems like you could have likely bought much sooner instead of renting in a fancier area than you could afford but simply wanted to "have your cake and eat it" so to speak.

This new scheme applies to up to 600k AFAIK, I can see why the public might think it is a bit off to start subsidizing people who are able to afford well over the national average house price.

You didn't reply to the previous post earlier in the thread:

So you currently find some utility in renting - your landlord is actually providing a useful service to you?

You have a bigger deposit than 5% but have chosen not to buy right? I got the impression in other threads that you were a bit bitter about handing over money to some landlord yet you don't seem to be willing to take on that financial commitment yourself either?

 

[dowie]

Pssst, the average price of a property in London is 500k. Shocker as someone is spending over the arbitrary 450k on the LISA scheme... And I live in zone 3. It's nice, and safe, but not fancy by any stretch of the imagination.

Average salary in London is rather high too - I'm not sure taxpayers need subsidize rich londoners!

It doesn't. But H2B does. So wait, are you saying it's "acceptable" for someone to buy a £599k property with H2B, just not with a LISA? Just want to be clear how you're trying to judge here. Thanks

No just the overall principle, one was clearly introduced after the other and you've got those different limits but my argument is more about the principle in general.

The problem with trying to get a mortgage in the South East/London with a 5% deposit is that the bank will only lend you up to a certain amount. With a 5% deposit you'd probably have to have two householders earning big 6 figures to get them to lend you enough for the average FTB property.

It's not a 5% deposit though it's going to have a government contribution to it too - I've not checked recently but banks do tend to go a bit beyond 3* income these days, some as high as nearly 5 times income. Either way I'm not sure many taxpayers are going to be too phased about the dilemma of someone who can't quite manage to get a half-million property! Worlds smallest violin and all that...

 

[dowie]

But the average house price to salary ratio is actually the highest in the UK. So actually you're entirely wrong. If you're talking averages, the average Londoner pays more as a proportion of their salary on housing than anywhere else in the country.

But I didn't specify that... I simply commented that the average Londoner earns more.

5 or 10% doesn't really make a difference. The bank's won't loan you enough.

Banks will typically loan up to circa 4.5 times income on mortgages so at the extreme end (lets say a 5% deposit and 600k property) that is a (joint) income of 126k or so - or 63k each... so doesn't require both partners to be on six figures... I could be done with one person on a (low) six-figure salary even, or just two people on much more modest incomes.

 

[dowie]

It is not the deposit that is the issue. It is the fact, lender will only times your income by 4.5 or 4.75, it depends on the lender. Houses are too expensive and when you multiple the person income, they won't get enough mortgage to buy the house.

If they're really too expensive then they'll fall.

They're already offering a deposit guarantee - and frankly, 4.75 times income is quite a hefty loan - I don't think we need to get into some much higher multiples tbh.. and surely if you think prices are an issue then that sort of thing would only serve to push prices up further. They're simply reflecting the supply of properties and the competition for it. We could build more homes of course, but that won't necessarily solve the issues of people who want to live in specific desirable areas of London or say Cornwall etc... so long as there are lots of people competing to live in a given area then you're just going to have to deal with that - either earn more/hustle your way to being able to afford it or accept reality and find some other place to live.

 

[dowie]

They can, until one of them loses their job, develops health issues, has an accident, they have children that need extra care or anything else that removes them from the workforce.

That doesn't necessarily stop them from affording it rather it just means that a bank won't actively look to lend in that situation... if the'yve already got a mortgage (and quite possibly some insurance) them meh..

The idea that only dual income households deserve to be homeowners is absurd, this is only the result of the last 15 years where wages remained stagnant and property prices more than doubled.

He didn't say that only dual-income households deserve to be homeowners though - he's referring to buying a 3 bedroom house on a dual income.

I think you'll find people complaining about house prices 15 years ago back in 2006 too - in fact some of them got their wish and saw a crash not long after.

If you don't like dual-income households then you'll need to go back a bit further than that and not have say women in the workplace so much... then perhaps house prices would instead be more in line with what a single breadwinner could afford.

 

[dowie]

£260k is median property price though, not a 3 bedroom house. To buy the median property, you need to be a dual income household.

So? What is your point? I think that is generally going to continue, to have a family home you're probably going to need to be a high earner or at least have a partner working part-time even if we do increase housing stock significantly.

15 years ago price-to-income ratio was about 6.5x, now it's almost 10x. Last time it's been this high was 1875.

Interest rates are rather low too - if people can afford to pay these prices then they'll stay high, I suspect they could dip a bit in the near future though.

Or maybe, I know it's crazy, we should have built enough houses to keep up with increase in population and demand, so that the increase in productivity by more women working wouldn't go into the pockets of land owners and developers, and instead would go into the pockets of the people.

Well it's not crazy now is it so no need for sarcasm, it's not going to solve anything for the people who want to live in some given area, so long as there is high demand for any location then people will compete and the losers will grumble - there were people moaning about house prices online well over 15 years ago... I remember reading forums in the early 00s and people were adamant that houses cost too much and the market was bound to crash soon as it wasn't sustainable etc.. yet here we are, 20 years on...

It isn't like there aren't affordable areas in the UK right now even - the trend perhaps will be towards more remote work post-pandemic. People can sit and moan or they can look at moving or getting a job where they can work remotely or changing their skill set etc..

This is a return to Feudalism.

LOL

 

[dowie]

Coupling mortgage interest rates to the base rate is another scandal, it's so insane no other country in Europe does this, and neither does the US.

Not particularly - it's a fairly simple concept and from the POV of a bank it's just the case of using swaps as needed...

Don't you think you're forgetting something? Something that happened in the late 2000s? People refer to it as the Global Financial Crisis? Don't you forget what caused it? And don't you see we're exactly repeating those same steps?

LOL

Eh? In your previous reply you quoted me literally talking about the financial crisis and one reply on you're pretending that I've never heard of it? Are you trying to have a discussion here or are you feigning amnesia or something? See the post linked below for a recap before replying again pls if you're going to throw in comments like that

https://www.overclockers.co.uk/forums/posts/34603898/

The good old "uproot your life so you can afford a roof over your head" argument. Funny, if everyone does that, those so-called affordable places won't remain affordable. And when there's an influx of London workers into remote areas, the locals in those areas are going to get priced out. Or maybe they now need to uproot their lives and move somewhere else.

You can't solve a massive, multi-million housing shortage by relocating people.

OK, so where are you going to build in Central London? You can build some towerblocks perhaps, are you going to turn it into Hong Kong or something?

 

[dowie]

Of course if your goal is to maximise bank profits, it's so simple. You can decouple the two, like it is in Eurozone, the US, Canada, Australia, etc. If their banks can handle it, so can ours.

Any evidence that a tracker maximizes profits to banks over a fixed? you're free to choose either - I don't think you'll find an obvious free lunch here.

Seems like you forgot your own comment then, in this post, when you mocked people who were claiming in early 00s that housing was going to crash when that's exactly what happened and they were proven right.

Nope, I've not forgotten that at all - I'm talking about 20 years later - pay attention to what I've said. If you find yourself throwing in questions like - has this poster forgotten that the financial crisis happened when he's mentioned it in a recent post you'd only just quoted him in then perhaps your take/interpretation is a bit off, if not just made completely in bad faith.

Exactly. England's population density is similar to Japan's. UK's is only slightly less (already 2x that of France). We should build housing similar to the likes of Japan, South Korea, Singapore, Hong Kong, etc...

Build taller, build high speed rail commutes and cities from scratch. If they can do it, so can we.

Sure and is a property in central Tokyo or a desirable area of HK affordable as a result? Again, think about it, you can build more to try and increase supply, you're not going to change the fact that people will want to compete for desirable locations and the losers will have to make some other choice like only being able to rent in a desirable area or having to move elsewhere.

 

[dowie]

There's plenty of brownfield sites in London, the problem is they just build 'luxury apartments' for Russian oligarchs or Arab sheiks because there's no legal impetus or regulation to ensure they are for the average London worker. You only have to look at the big development sites for 5mins to see what wasted opportunities they are. Try Battersea for the obvious one, that's 20,000 homes up the spout. Totally pointless. Or Royal Wharf, that's nearly 4,000 homes. That's just off the top of my head.

This is why I disagree vehemently with anyone simply suggesting 'build more' to solve the crisis. There's no point building more when (a) they are all 'luxury' apartments and priced as such or (b) if they are anywhere remotely affordable then they are bought up by aforementioned oligarchs or sheiks. Or worse, landlords.

Location affects the price significantly though - whether you want to call them "luxury" or not, if you build in a desirable area then lots of people will compete to purchase those, a developer isn't going to want to sell at some huge discount.

You could try to force a discount for some limited supply of them - some sort of social housing allocation with some criteria for who can buy - lived in the areas for X years as a local council taxpayer or works as a key worker + some max income requirements - maybe then you have some select group of people earning say between 40-60k or some couple with smaller individual but larger joint incomes who can buy a property etc... you've still got an intractable problem with desirable area and supply - even if your allocation isn't purely on price you might have some huge demand for such properties and have them snapped up as soon as put on sale or you might need a lottery system or you might have just restricted your allocation to such a small subset of people that they sell steadily over time but aren't really available to all the others who would love to live there but aren't eligible.

Either way a desirable area in a place like London is going to be oversubscribed whether you allocate properties by price or you thrown in some criteria to filter people and allocate to some subset you're still going to have people who lose out.

 

[dowie]

I don't disagree at all. It's amazing how successive governments ignore the possibilities though and are 100% happy for these to go to the highest bidder.

It'd be an amazing (and huge) step simply to ban sales to foreign nationals (domiciled abroad), landlords, and anyone who's not a FTB.

I don't think we should seek to exclude renters from new developments tbh...(especially in central London where there will be more demand for this from the disproportionate % of young people/professionals and international workers living there short term etc..) I can see the merits of banning foreign owners but I think perhaps a better idea would be to just throw in a significant stamp duty rate for them - so it's not attractive as an investment and more just focused on the fewer foreign buyers who might need a London pad they'll actually use.

I don't see any merit in banning non FTBers tbh.. people need to relocate or downsize etc.. restricting the market in that way doesn't seem to have much utility IMO.

 

[dowie]

Unless you’re adding to your savings pot by £500+ a month an average house will almost forever be out of reach. Say you’re after a £250k house, 10% deposit (I’m aware of the 5% point of this post) so you’re looking at 25k deposit. £500 a month will take 50 months or four years to save. By which time the £250k house, even at a modest 5% per year increase is now worth £290,000. Which means another £4,000 required. It’s exponential and the longer it goes on the worse and worse it’s going to get.

For them to be "forever" out of reach there needs to be a strong assumption there that "modest" 5% rises can be sustained almost perpetually, that isn't necessarily going to be the case. As someone else mentioned you're going to get boomers passing on houses at some point etc.. population doesn't have to grow necessarily, we can build more in the future etc... also interest rates might need to rise in future too (though the last point is somewhat moot - prices might fall or level off as a result of a rise in rates but homes won't necessarily be any more affordable given higher rates - the competition for any given desirable area is still there).

 

[dowie]

House price growth doesn't allow people to trade up, if anything its the opposite because the gap in £££ will increase over time.

Depends, it isn't like different properties and/or different areas all grow at the same rate - you might find value in one area then in a few years when you come to sell, a relatively high rate of growth gives you a fat deposit to use elsewhere.

Also if prices are rising then it can help immensely with trading up, you can perhaps re-mortgage a couple of years after purchasing and have a much better LTV % ergo you end up with cheaper monthly payments than if prices had stagnated or fallen.

 

[dowie]

In the past six years the average house price in the UK has risen from £190k to £231k. An increase of £41,000. A couple saving for a deposit who started in 2015 now need to find an extra £4,000. Or an extra £1,000 per year on top of the £4k per year they were already putting away. If you live in the south east or heaven forbid were born in London and are looking to stay there things are even more difficult.

The comment was made about people trading up though rather than FTByers.

 

[dowie]

I also suggested this.

Problem is renovation etc. You just wouldn't do it.
Really. It sounds ideal.. In an ideal world. Prices wouldn't rise at all. But what would they be set at?

Profits should be heavily taxed for sure. I'd be completely happy to not make profit on my home. It would help with upgrading to the next stage too.

But if you tax people heavily on their primary homes then you stifle the ability of people to move....

Suppose Janet and John buy a family home in the Midlands for 300k, they have two kids and 10 years later their home is worth 500k, John gets a new job in Yorkshire, they see a similar home on the market in Yorkshire for 500k... not an issue under current rules, they'll pay a bit in stamp duty, moving costs and legal fees but they can make the move....

On the other hand, you think they should be "heavily taxed" I guess heavily taxed is anything over 50% (?)... but lets say it is 50%, well now if they sell their 500k home that they paid 300k for they'll have to hand over £100k to HMRC... they might now need to take out a bigger mortgage or look for a smaller house worth 400k or indeed perhaps the move itself is no longer worth it, John stays in his current role, the company that was going to recruit him isn't able to tempt him up to Yorkshire as you've put in a huge disincentive for any homeowner who now wants to move house for work.


(figures above are arbitrary - but essentially the point is that if you heavily tax anyone on their primary residence then simply having an increase in house prices over a bunch of years means that you could heavily penalise any simple lateral move)

 

[dowie]

CGT is already aplicable when selling a second home or a BTL isn't it?

Yup it is. Can be avoided on individual sales by using a ltd company to hold your properties though, ditto to still being able to deduct mortgage interest.