Labour reveals expansive strategy to aid first-time homebuyers
In a recent announcement, Sir Keir Starmer, leader of the Labour Party, pledged that if successful in the next General Election, he would make the mortgage guarantee scheme a permanent fixture in the UK. This initiative aims to improve housing market liquidity and affordability for first-time buyers.
The process of buying a house involves more than just raising a deposit. It also requires passing checks to demonstrate the ability to afford mortgage repayments and having a sufficient regular income, regardless of any government guarantee.
Starmer's Labour Party, according to his statement, would be on the side of builders and aim to get Britain building again. He also said in a debate that as prime minister, he would turn the dream of owning a home into a reality by implementing a new Freedom to Buy scheme and giving first dibs on new developments to first-time buyers.
The mortgage guarantee scheme, initially introduced by Rishi Sunak in 2021, aims to increase the availability of low-deposit mortgages for first-time buyers. Under this scheme, eligible first-time buyers and home movers can purchase a property with a deposit as low as 5%, supporting mortgages with 91-95% loan-to-value (LTV) ratios for homes valued up to £600,000. The government provides a partial guarantee to lenders against potential losses up to a liability cap of £3.2 billion.
The key impacts and implications for the UK housing market include increased access to homeownership, sustained availability of high LTV mortgages, and market risk considerations. By reducing the required deposit, the scheme supports more first-time buyers and home movers, potentially supporting an additional 36,000 mortgages for first-time buyers in the first year. The government's partial guarantee encourages lenders to maintain or increase the supply of loans with LTVs up to 95%, easing credit constraints and improving borrowing options for buyers with limited upfront capital.
However, risks exist if property prices fall sharply, as borrowers with small deposits have low equity buffers. This could lead to negative equity situations and higher risk of default, putting some financial strain on lenders and the government’s guarantee liability.
The scheme coincides with a relaxation of post-financial crisis mortgage lending rules, allowing lenders to offer loans up to six times a borrower's income (up from 4.5 times), further enhancing borrowing capacity for buyers under the scheme. While the government bears some contingent liability, this is capped at £3.2 billion, and lenders pay commercial fees to participate, which aims to offset expected claims and manage taxpayer exposure.
The current Chancellor, Jeremy Hunt, has extended the mortgage guarantee scheme until July 2023 due to the current cost-of-living crisis. The Institute for Fiscal Studies' senior research economist, David Sturrock, stated that young adults are a third less likely to own their own home than they were 25 years ago due to big falls in homeownership during the 2000s. With approximately 6.7 million people aged 15 to 34 in the UK living with their parents in 2022, Starmer's Labour Party supports hard work and ambition and aims to clear the way for the opportunity to own a home.
In conclusion, Starmer's Labour government, if elected, would help first-time buyers onto the property ladder with the new Freedom to Buy scheme and by giving them first dibs on new developments. However, potential risks related to housing market volatility and borrower equity require careful monitoring and prudent lending practices.
Politics surrounding housing policy-and-legislation in the UK is currently a hot topic, with Sir Keir Starmer, leader of the Labour Party, pledging to make the mortgage guarantee scheme a permanent fixture if successful in the next General Election. Starmer's Labour Party aims to support first-time buyers by offering the new Freedom to Buy scheme and prioritizing new developments for them, as part of a broader goal to get Britain building again.
