In an impassioned speech to the members of the Conservative party yesterday (October 6th, 2020), the prime minister Boris Johnson has announced his post-Covid vision for Britain: he wants us to ‘build back better’.
In addition to expressing a strong desire to beat coronavirus and return to meeting other people in person, Johnson also announced that he does not want certain aspects of society to return to their pre-coronavirus ways. Specifically, he spoke about changing ‘Generation Rent’ to ‘Generation Buy’.
What did Johnson say?
In his speech, the prime minister said:
“We need now to take forward one of the key proposals of our manifesto of 2019: giving young, first-time buyers the chance to take out a long-term, fixed-rate mortgage of up to 95% of the value of the home – vastly reducing the size of the deposit and giving the chance of home ownership – and all the joy and pride that goes with it – to millions that feel excluded…
We believe that this policy could create two million more owner-occupiers – the biggest expansion of home ownership since the 1980s…
We [Johnson’s Conservative Party] will help turn generation rent into generation buy.”
What does this mean?
The phrase Generation Rent refers to a rising issue among the current young generation of 20 and 30-somethings: the seeming inability for this group to afford to purchase and own their own home.
With house prices rising, the amount needed for a standard deposit continues to rise with it – which makes it increasingly difficult to afford a deposit on a home.
Considering that wages have continually not risen with the amount of inflation; this has led to an issue where people (specifically, younger people) are not earning enough to pay rent and also save sufficient money towards a deposit – trapping many younger folks into a perpetual cycle of renting.
What’s the proposed solution?
The way Johnson aims to achieve the largest expansion of home ownership since the 1980s is by introducing a mortgage scheme which allows for deposits of 5%.
The current standard amount which someone who is buying a first home will put down as a deposit is 10%.
This means that this scheme would cut the amount of money young people need to save in order to afford a deposit essentially in half – thus, making it far easier to save for a deposit.
This would make a huge difference to prospective homebuyers.
For example…
- The average UK house price is £238,000.
- A 10% LTV on that would see a prospective buyer have to save a hefty £23,800 towards a deposit.
- However, under the new scheme announced by Johnson, a prospective buyer would need only come up with £11,900; making the prospect of saving a far less daunting task.
It’s still unclear how exactly Mr Johnson expects to implement this scheme, however given the announcement yesterday news will likely come in the coming weeks and months.