Before the pandemic struck, first-time buyers were finally getting on the ladder. The Government’s plan – to squeeze landlords out and throw money at wannabe homeowners – was actually working.
Then came coronavirus. With it, a quiet credit crunch took hold as banks shut up shop to risky buyers. But don’t worry – the prime minister has a plan. Boris Johnson said the Government would create “Generation Buy”, by encouraging banks to provide long-term fixed-rate mortgages with a 5pc deposit for these first-time buyers suddenly left out.
The catch? This would mean reversing changes made to the mortgage market in the wake of the financial crisis that has required banks to stress-test applicants, as well as the Government – and therefore the taxpayer – taking on some of the risks of these loans. Loosening the rules that were put in place to prevent another banking crisis and loading up on risky debt don’t necessarily seem like good ideas as we head into a period of forecast house price falls. One of the reasons banks are currently so cautious is the threat of negative equity when the price of a property falls below the amount borrowed to buy it. But the real problem is that lenders must play ball for it to work, and given the current uncertainty in the market, that seems unlikely. The plan seems to make banks give mortgages to people they don't want to lend to. You can make rules that stop banks lending but you can't make rules that make banks lend. Mr. Johnson's dream of a new "Generation Buy" isn't the only battle the Government and banks are waging. The looming crisis of flats with Grenfell-style cladding is also pitting lenders against politicians. Ministers have so far dodged questions on the issue – which has seen banks refuse to lend against some properties in low-rise apartment blocks without an EWS1 form – saying only that lenders should not take a blanket approach. It’s a neat and frustrating echo of the “Generation Buy” proposal, but the Government can’t make banks lend on what that they deem too risky.
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