In something of a politically savvy move, PM Boris Johnson used the Conservative Party Conference to shift focus from the inevitably downbeat discussion of coronavirus, and back onto his galvanising and favourite adage – ‘levelling up’. The centrepiece of this new discussion, among transport links and £3.7 billion to renovate hospitals, was a pledge to drop mortgage deposit rates to just 5%.
This move is the core of the prime minister’s new ‘Generation Buy‘ initiative, which should, and likely will get a lot of support just because of its premise. That being, in the prime minister’s own words:
“A huge number of people feel totally excluded from capitalism, from the idea of homeownership, which is so vital for our society,”
“And we’re going to fix that – Generation Buy is what we’re going for.
He adds: “We need mortgages that will help people get on the housing ladder even if they have only a small amount to pay by way of deposit. It could be absolutely revolutionary, particularly for young people.”
Indeed, as stated by eminent sociologists such as Robert Putnam, and Oxford economist Paul Collier, home ownership is the cornerstone of citizens feeling enfranchised and a sense of belonging within the society they live in.
Once a person owns a property, they put a large part of their toil, time and money into an asset, and in return – in an ideal scenario – it offers them physical and financial security for themselves and their families – in short, it becomes a home.
This attachment to property, with all things being well, increases the likelihood of attachment to the surrounding place and people. This sense of mutual belonging, and shared enjoyment of owning property, can contribute to the fabric of a community, by ultimately creating a shared understanding between peoples who each benefit from owning a tangible chunk of the society they call home.
This privilege, being part earned and part afforded (by rights, laws, property prices) to people, makes them more likely to look favourably upon society, and in turn upon its peoples and its institutions (traditions, laws, culture etc).
If encouraging first-time buyers is a good thing, what’s wrong with Boris Johnson’s mortgage deposit idea?
According to the charity, Shelter, the main problem with the PM’s new scheme is that it sells ‘pipe dreams’ to ordinary people, with the average house price now more than eight times the average (and formally recorded) UK salary. In the words of the charity’s chief executive, Polly Neate:
“You have to question whether the prime minister is in touch with reality. He is talking about giant mortgages at a time when more than 320,000 private renters have fallen behind on their rent as a result of Covid-19.”
“The prime minister needs to stop selling pipe dreams and start facing reality. The only way we will make a dent in the housing emergency is by increasing the number of secure and genuinely affordable homes, and that means building decent social housing.”
Indeed, a consistent supply of new and affordable housing stock is needed, alongside restrictions on overseas buyers. This issue has some potential of being resolved, both with the PM’s housebuilding pledges, but also the infant ‘starter home’ scheme, which, if expanded, could hopefully act as a better-regulated revival of right-to-buy.
The problem that seems to have been missed by many, however, is that it is the banks that are issuing the mortgages (or not, in this case), and we therefore have to ask on what grounds are mortgages being rejected at such high rates.
Sure, deposit size is the issue being tackled here, but something not being discussed – and now a frequently asked question by mortgage providers – is the provenance of mortgage deposits.
As I was told by a solicitor, banks don’t just want to know if you have the money, but where it has come from – because that gives a lot of indication of whether there is more to come. If your mortgage deposit is courtesy of the bank of mum and dad, you’re far more likely to be rejected. What banks want is a deposit generated organically by working groups or individuals, with steady and reliable incomes, not one-off sums followed by promises.
Aside from the difficulties this poses to Boris Johnson’s triumphant-sounding but as-yet unrefined scheme, this kind of mortgage provenance pickiness could be a disaster for the next generation of homeowners.
With most previously existing social housing now privately owned, and home ownership half of what it was at its peak in 1980, the main way to pass on assets to the next generation is via inheritance. This will either be through cash or cash equivalents, or hard assets such as property being divided between siblings. And, if banks are reluctant to accept one-off lumps of cash not earned by a prospective mortgagee, this will disrupt the inter-generational passage of assets.
This, I believe, is an important consideration that must be taken onboard if ‘Generation Buy’ is to stand any chance of success.
