Government could loosen mortgage stress tests

Landlords could face more competition from first-time buyers in the years ahead after the government indicated that it would loosen mortgage stress test rules.

Speaking in Blackpool last week, Boris Johnson suggested that lending restrictions are a big reason why some younger people aren’t able to buy a home.

As a result, the government is launching an independent review of access to mortgage finance for first-time buyers.

The mortgage market was hit by stricter lending rules in the wake of the Global Financial Crisis – and ever since borrowers have had to prove they can still afford their mortgage even if rates see a steep increase. Later buy-to-let investors were hit by similarly strict rules from the Prudential Regulation Authority.

Boris Johnson

Johnson said: “We have a ludicrous situation whereby plenty of younger people could afford to make monthly mortgage payments – they’re earning enough to cover astronomical rent bills.

“But the ever-spiralling price of a house or flat has so inflated deposit requirements that saving even just 10% is a wholly unrealistic proposition for them.

“First-time buyers are trying to hit a continually moving target.

“And of course, the global rise in the cost of living is only making life harder for savers, so we want it to be easier to get a mortgage.

“Reporting back this Autumn [the review] will look at how we can give our nation of aspiring homeowners better access to low-deposit mortgages.”

Part of this pledge to incentivise homebuyers is extending the controversial Right to Buy scheme to housing association tenants.

Margaret Thatcher

Margaret Thatcher’s old scheme has been blamed on dwindling social housing stock but has previously helped turn tenants into homeowners – the latter of which are historically more likely to vote Conservative.

Meanwhile the government has pledged to tweak Universal Credit rules so those saving into a Lifetime ISA won’t be penalised by lower welfare payments.

As it stands the amount of Universal Credit received drops when a claimant’s savings exceed £6,000, and stops when they exceed £16,000, but these restrictions won’t be counted when money is saved into a Lifetime ISA, which gives people a 25% bonus when buying their first home.

Levelling Up Secretary Michael Gove said: “Today we are extending the opportunity of homeownership to millions more hardworking people across the country.

“By extending Right to Buy and bringing forward the most comprehensive review of the mortgage market in decades, we are backing first-time buyers, breaking down barriers to homeownership and delivering on the people’s priorities.

“At the same time, we will continue to deliver much-needed new, good quality social homes by replacing each and every property sold.”

Michael Gove

However Dan Wilson Craw, deputy director of Generation Rent, said: “Ultimately the Prime Minister failed to set out action to deal with the unaffordable level of house prices and rents. Neither the review of low-deposit mortgages, nor extending right to buy to housing associations will address the shortage of homes we need in places people most want to live. For that we need a programme of social house building beyond the one-to-one replacement of homes bought under Right to Buy.”

“Neither the review of low-deposit mortgages, nor extending Right to Buy to housing associations will address the shortage of homes we need in places people most want to live. For that we need a programme of social house building beyond the one-to-one replacement of homes bought under Right to Buy.”

Craw was more positive about the Universal Credit change, saying it would “restore some fairness to the benefits system”.

The director of Benham and Reeves, Marc von Grundherr, is hostile towards Right to Buy.

He said: “We’ve seen how previous initiatives allowing social tenants to purchase their properties has backfired, as it causes a significant shortage of stock for those most desperately in need of help, while also driving up property values in the process.

“Of course, this time around it will be different, as they pledge to replace these purchased properties on a one for one basis. Unfortunately, if you believe that, you may also believe that the drunken shenanigans that took place at Downing Street during the pandemic really were innocent, work related events.

“The government’s record of delivering new homes is woeful at best and social housing has long been an area of serious neglect. To allow them to auction off existing housing association stock while also failing miserably to replace it would be a big mistake indeed.”

Comments 1

  1. The whole point of stress tests imposed by mortgage lenders is to gauge whether the borrower will be able to weather the storm if interest rates rise. They are doing this to avoid a second sub-prime global financial crash. This is also why they try to keep deposits high to insulate themselves against property prices dropping during a financial crash.
    While demand for homes outstrips supply making it easier for people to overstretch themselves financially will not solve anything. As soon as the financial brakes come off house prices (and rents linked to house prices to some extent) will rise to accommodate the money available.
    The Government need to recognise that home ownership is just a dream for increasing numbers of people. Even so called affordable homes of which a pathetic number are being built are unaffordable for many. The only realistic long term solution is to build thousands of more homes at affordable rents in places where people actually want to live, not in vast “sink”estates. Giving people the financial rope to hang themselves with is not the answer.

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