Government should provide mortgage deposits for Generation Rent, says think tank
Press release
A report published today by think tank Localis makes the case for Government to provide mortgage deposits for Generation Rent. The report, Turning Generation Rent into homeowners, argues that for younger people the housing market is an acute example of intergenerational inequity. It is a rigged race, where the finishing line is being moved further away faster than the majority will ever be able to run.
To lower the ladder of home ownership to those who cannot save for a deposit, Localis recommends the establishment of a Government-backed Deposit Guarantee scheme for first-time buyers under 40. As part of this scheme, Government would invest the requisite 10% deposit for new build homes (up to a fixed value) into a secure account to be held by the lender until such a time as the buyers mortgage payments have covered the deposit amount. At which point government would recoup its investment in full. This follows the reintroduction of 100% mortgages to the market, such as the Family Springboard Mortgage recently launched by Barclays.
The estimated cost of implementing a Mortgage Guarantee scheme for Government is low. With the cost of interest potentially passed onto the borrower, apart from any cost incurred from repossessions, Government would fully recoup its investment in Generation Rent.
| Number using scheme | Estimated total cost to Government of providing 10% deposit | Possible loss from foreclosures |
| 100,000 | £1,754,530,000 | £4,561,778 |
| 200,000 | £3,509,060,000 | £9,123,556 |
| 300,000 | £5,263,590,000 | £13,685,334 |
| 400,000 | £7,018,120,000 | £18,247,112 |
| 500,000 | £8,772,650,000 | £22,808,890 |
Other recommendations made in the report to support Generation Rent into home ownership include:
- Government should revise its Rent to Buy scheme to become Save to Buy, a product which provides Generation Rent with subsidised Living Rent and the financial headroom with which to obligatorily save for a deposit, As part of this, local authorities should be able to promote the supply of Save to Buy housing alongside or in place of Starter Homes.
- Government should commission the development of ‘Abercrombie 2.0’, a new masterplan for the release of new land for housing across London and the South East.
- Government should commission a comprehensive review of the Green Belt. This should be focused on London and the South East but with reference to other metropolitan Green Belts.
Liam Booth-Smith, Chief Executive of Localis and co-author of the report, said: “Owning your own home is a special achievement the government is right to support. But for many younger people, those in their 20s and 30s, the dream of owning your own home is just that, a fantasy. 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.
“Under the scheme we propose government would simply place the deposit into a secure account held by the lender, and after a set number of mortgage payments have been made, the cash would be released back to the Treasury. The potential risk to government money, through repossession and loss of property, is incredibly small too. This is a one off investment that could turn Generation Rent into the next wave of British homeowners.”
ENDS
Press enquiries:
Liam Booth-Smith, Chief Executive, Localis
07452 960753 / liam.booth-smith@localis.org.uk
Notes to Editors:
- The Family Springboard Mortgage recently introduced by Barclays is a 100% mortgage product with the requirement that a parent (or other party) places 10% of the total loan value into a savings account for three years as security for the period of the mortgage during which the deposit contribution would be paid. Following three years successful mortgage payments the money is then released to the original lender.
- The estimated cost of implementing Mortgage Guarantee scheme for Government has been calculated by 1) using Nationwide’s most recent figure for the average price of homes bought by first time buyers (£175,453) and 2) by projecting an assumed repossession rate using the average percentage of properties repossessed each year in the ten years up to 2013 (0.26%) and very conservatively assuming that all are first-time buyers.
- Localis is an independent think-tank dedicated to issues related to politics, public service reform and localism. Since our formation we have produced influential research on a variety of issues including housing, local government finance and health and social care. We carry out innovative research, hold a calendar of events and facilitate an ever growing network of members to stimulate and challenge the current orthodoxy of the governance of the UK.