Government urged to provide ‘Generation Rent’ with mortgage deposits

19 Sep 16
Ministers have been urged to provide young people who are renting with mortgage deposits in order to enable them to get onto the property ladder, a report by the think-tank Localis has said.

In a report, the think tank calls for the formation of a government-backed deposit guarantee scheme for first-time buyers under 40. Under the scheme, the government would invest the required 10% for new build homes (up to a fixed value) into a secure account.

This would be held by the lender until such time as the buyer’s mortgage payments have covered the deposit amount, at which point the government would recoup its investment in full.

According to Localis, this scheme is now workable thanks to the recent reintroduction of 100% mortgages onto the market, albeit requiring 10% security from a family member. Allowing the governemnt to play this role would open up home ownership, says the report, while the money was likely to returns to Treasury coffers quickly.

Such a policy would “lower the ladder of home ownership for those who cannot save for a deposit”. In a statement, the think tank said that for young people, the housing market represents “intergenerational inequality… a rigged race, where the finishing line is being moved further away faster than the majority will ever be able to run.”

The financial burden of such a scheme for the government would be low, according to the review, with the interest possibly passed onto the borrower. Aside from costs incurred from repossessions, government would then “fully recoup its investment in Generation Rent.”

Figures in the report estimated that, were half a million people to borrow the 10% deposit needed for a new house from government, it would cost around £8.8bn, with the possible loss from foreclosures around £22.8m.

Also suggested in the report was a new masterplan for the release of land for new housing across London and the South East, and for the government to review the status of green belt land.

Liam Booth-Smith, chief executive of Localis and co-author of the report, called on government to support home owning.

“With the market now issuing a signal that 100% mortgages are, with the right security, viable, an opportunity has opened up to support thousands of young people who can afford the cost of a mortgage, but don’t have the bank of mum and dad to rely on for a deposit, by stepping up and providing that deposit for them.

“This is a one-off investment that could turn Generation Rent into the next wave of British homeowners.”

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