There was never any doubt that Boris Johnson’s plans to help as many Brits as possible get on the housing ladder would be anything but a big disappointment. We already knew much of what he was going to say before his already infamous remarks were voiced in Blackpool this week.
“We’re going to look to change the rules on welfare, so 1.5 million working people who are in receipt of housing benefits and want to buy their first home will be given a new choice: to spend their benefit on rent as now, or put it towards a first-ever mortgage,” he said.
“Doing so removes a significant barrier that currently prevents hundreds of thousands of families from buying their own home.”
“We’re going to explore discounting lifetime and Help to Buy ISA savings from Universal Credit eligibility rules”.
Support for ‘trapped’ housing association tenants?
In addition to the above, he talked about an extension to the existing Right to Buy scheme, which will give up to 2.5 million housing association households the opportunity to purchase their properties at a discounted price.
“They’re trapped; they can’t buy; they don’t have the security of ownership; they can’t treat their home as their own or make the improvements that they want,” he said.
“So, it’s time for change. Over the coming months, we will work with the sector to bring forward a new Right to Buy scheme.”
All of this is somewhat predictable, as was the reaction from those within the housing and mortgage sectors who were quick to lambast the ailing prime minister.
“There are real practical problems; to qualify for Universal Credit, you’ve got to have savings of less than £16,000, which means that most people who the government is trying to reach with this announcement are not going to have anything near the amount that they need for a deposit,” said Shadow Levelling Up Secretary.
Her sentiments were echoed by Edward Checkley, managing director of London-based property finance specialists, who highlighted the dangers of plunging struggling households into further debt.
“This policy would go against all sensible lending practices, considering housing benefit is typically awarded to assist with rental payments if unemployed or on a low income, and to households with less than £16,000 of savings,” he said.
“With the cost-of-living crisis already affecting lower-income households, how can saddling them with debt be responsible?”
Elsewhere, the founder of Mansfield-based Shaw Financial Services, Lewis Shaw, gave the prime minister both barrels and joined the growing call for his resignation.
“Mortgage lenders already allow people to use state benefits to support a mortgage and have done so for years. It varies from lender to lender exactly which state benefits they’ll take into account, so I’m not sure what a new policy could be,” he said.
“It’s almost as though they don’t know how the mortgage market works already. If we’re to believe they want higher LTV mortgages, there’s only one place to go, and that is 100% LTV. However, again, we already have 100% LTV as a couple of lenders allow you to take a personal loan as a deposit.”
“It’s more bluster from the blond blancmange. Just resign for God’s sake and let someone with an ounce of competence and integrity have a crack.”
The ‘strength in numbers’ approach to home buying
Increasingly, millions of prospective first-time buyers are counting themselves out of the running as far as home ownership is concerned. Even when coming up with the required deposit to qualify for a mortgage is possible, skyrocketing house prices are pricing many out of contention.
With average house prices now hovering around £300,000, lenders’ policies on salary-based maximum mortgage sizes are proving increasingly unrealistic. Capped at around 4.5 times the applicant’s salary, even a £35,000 per year earner would fall drastically short of the mark.
A mortgage of £157,000 has been more or less useless across much of the UK for years, thus painting an even more unfortunate picture for many millions earning closer to £20,000.
This is where a product known as a Joint Borrower Sole Proprietor (JBSP) mortgage could help; a JBSP mortgage works by effectively combining the annual incomes of up to four family members in order to increase the maximum loan amount.
Responsibility for the mortgage is effectively shared between all who sign in to the agreement, usually the person or couple looking to buy their first home, and the parents of one of the buyers.
Like a conventional mortgage, a JBSP mortgage can be taken out with an LTV as high as 95%. Maximum loan sizes and terms vary on the basis of the ages of the supporting applicants, and all borrowers named in the application must be in employment at the time.
Where the conventional pathway to homeownership seems implausible at best, considering the alternative options with the help and support of an experienced broker is highly recommended.
For more information on any of the above or to discuss the benefits of joint borrower-sole proprietor mortgages in more detail, contact a member of the team at UK Property Finance today.