What does ‘Generation Buy’ mean for first-time buyers?

First-time buyers have always faced challenges getting on the property ladder, and the pandemic hasn’t made it any easier. That is why the government has intervened in various ways to help. Initiatives such as the Help to Buy: Equity Loan scheme and the stamp duty holiday have provided lifelines for […]

First-time buyers have always faced challenges getting on the property ladder, and the pandemic hasn’t made it any easier. That is why the government has intervened in various ways to help. Initiatives such as the Help to Buy: Equity Loan scheme and the stamp duty holiday have provided lifelines for first-time buyers. The latest government announcement of a Generation Buy scheme offers further support for those buying their first house.

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What is Generation Buy?

To understand the term ‘Generation buy’, it might be important to define ‘Generation Rent’ first. Generation Rent is a phrase used to describe young adults between the ages of 18-40 who cannot buy property. 

Prime Minister Boris Johnson highlighted that the most prevalent reason young adults can’t afford to buy houses is the size of the deposit required when applying for a mortgage. He further stated that it is high time young adults were given a chance to take out long-term fixed mortgages of up to 95% of the home’s value.

Such a move would provide homeownership opportunities for millions of young adults locked out of the property ladder. 

The statement “turning Generation Rent into Generation Buy” simply means helping young adults to buy rather than rent property in the future.

Are 95% mortgages coming back?

Owing to the pandemic, various mortgage lenders withdrew their 95% mortgages for new buyers. They set a new maximum of 85%, meaning buyers need to deposit 15% of the property’s value.

Some lenders retained their 95% mortgages but increased the interest rate, indicating higher monthly repayments and generally expensive mortgages. This was not an attractive deal for first-time buyers.

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In April 2021, the mortgage guarantee scheme came into effect, with participating lenders offering 95% mortgages under the government guarantee. This has given many first-time buyers the chance to get on the property ladder with only a 5% deposit. Clearly, this is a step towards turning Generation Rent into Generation Buy. 

Mark Gordon, director of mortgages at comparethemarket.com, commented: “The Government’s confirmation of a ‘Generation Buy’ scheme will help to fill the small deposit mortgage void which is preventing many first-time buyers from getting a foot on the ladder.

“According to our research, almost one-quarter (23%) of first-time buyers have seen their mortgage lender reduce their maximum loan value in the past year. For first-time buyers, in particular, this ‘Generation Buy’ scheme is an important boost to help promote choice and competition in the mortgage market.”

Can I buy a house with a 5% deposit?

Yes. As indicated earlier, the government has already launched a mortgage guarantee scheme to make 5% deposit mortgages available. 

It’s not that lenders don’t want interested buyers to get on the property ladder. Basically, offering 5% deposit mortgages presents risks to lenders.

With the new scheme, the government guarantees that it will repay a portion of the lender’s losses if a borrower defaults on the loan. This minimises risks for the lender and offers first-time buyers the chance to get on the property ladder.

Remember that you still have to meet the lender’s criteria to qualify for the 5% deposit mortgage.

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