Since 2001, the UK has had no fewer than 16 housing ministers. Seven held the post under a Labour government. Nine have held the post under a Conservative government. None have succeeded in resolving the many issues with the UK’s housing market. Now it’s Boris Johnson’s turn to try.
A conference to remember
Even though the Conservative party conference is an annual event, the 2020 conference will probably go down in history as an event to remember. It was the first time the conference had been held virtually. The reason it was held virtually was due to a global pandemic and, of course, it was the last Conservative party conference before Brexit.
It was therefore entirely understandable that the Prime Minister would use the occasion to try to spread at least some cheer and general positivity. One of the ways he did this was by setting out a plan to convert the current under 40s from “Generation Rent” to “Generation Buy”.
The Prime Minister’s plan is thin on detail
At present, there is virtually no specific information available about the PM’s intentions. All he has said is that he intends to make it possible for first-time buyers to buy homes with only a 5% deposit. This statement in itself is rather odd because it is already possible for them to do so via the existing Help to Buy Equity Loan scheme.
As a quick reminder, this was due to have been closed at the end of March 2021. It has, however, been officially extended to the end of March 2023. It will, however, only be available to first-time buyers. There will also be some adjustments to the level of help available. The fundamental mechanics of the scheme will, however, remain the same.
To recap, under the existing Help to Buy Equity Loan scheme, buyers put down a 5% deposit. The government guarantees 20% of the remainder so the buyer only needs a mortgage for the remaining 75%. The government loan is interest-free for five years. After this time, the buyer can either buy them out or pay interest on the loan.
Help to Buy Equity Loan Part 2?
If Boris Johnson simply meant to extend the existing Help to Buy Equity Loan scheme without any changes, then presumably he would just have said so. This suggests that, while the basis of the idea might be the existing Help to Buy Equity Loan scheme, there are going to be some changes to it.
The risks of extending the Help to Buy Equity Loan scheme
Extending the Help to Buy Equity Loan scheme to include completed property might placate those who object to homebuilders profiting from the taxpayer. It would, however, create additional risks, which could rebound on the taxpayer.
The first risk is the risk of creating a housing bubble, or, at the very least, creating excessive house-price inflation. If it does, then there are massive risks to everyone, including, possibly especially, the next generation of first-time buyers.
The second risk is the risk of default. Quite bluntly, the Help to Buy Equity Loan scheme does not make housing more affordable by making it less expensive. It makes it more affordable by restructuring the financing. It also puts the taxpayer on the hook for much of the risk of default on that financing.
Your property may be repossessed if you do not keep up repayments on your mortgage.