Changing generation rent into generation buy

Yesterday Boris Johnson issued a rallying cry to the UK property sector with a 5% deposit scheme for first-time buyers. At this moment in time the announcement is high on rhetoric and low on detail – a similar pattern to years gone by. So, what does this mean for the UK property market?

Are first-time buyers the key to UK property resurgence?

It is fair to say that first-time buyers are the key to any recovery in the UK property market. With average deposits currently between 15% and 20%, this has proved a stumbling block for many of those looking to climb onto the ladder. The announcement by Boris Johnson will have many potential first-time buyers jumping on the Internet, looking for their dream home. However, what is the reality of this new deal?

Lack of housing stock

Many housebuilders in the UK have begun to question the relevance of such a deal. While making UK property more affordable for first-time buyers has huge benefits, what if there is no housing stock available? We know that UK housebuilders are struggling, coronavirus restrictions have proven expensive and unemployment is expected to increase post-January 2021. So, while it is all good and well making UK houses more “affordable” is there a risk?

High loan to value ratios

A 95% LTV ratio is not unheard of, even in the current environment, but it is not without risks. Even those 95% LTV mortgages currently available come with significant restrictions and minimum income levels. It would not take too much of a wobble in the UK property market to see some first-time buyers creeping towards negative equity. A couple of missed payments and they could be in serious trouble.

There are concerns that the government will “remove” stress tests (for this particular scheme) which have become an integral part of the UK mortgage process. As a consequence, the UK government will take on a degree of risk by guaranteeing (the extent to which is unknown at the moment) the arrangement. The scheme itself is expected to assist an additional 2 million people in climbing onto the UK property ladder in the short-term.

The reality of UK property prices

It is fair to say that UK property prices have performed much better than even the most optimistic of experts had hoped. At this moment in time there is no sign of the collapse in property prices but January 2021 will be a critical time, with unemployment expected to increase. So, on one hand we have a lack of suitable/affordable property and on the other ongoing support for buyers. Many would argue this is creating something of a “false market” which can’t last forever. In reality, nobody really knows at this moment in time.


Boris Johnson was very keen to hark back to the days of Margaret Thatcher and the “right to buy scheme” which lit the blue touch paper on UK homeownership. As with all politicians, yesterday’s announcement was full of rhetoric but lacking detail. It is unclear at this moment in time how the government guarantee will work, why the stress test needs to be removed or how the government will tackle the shortage of affordable/suitable homes.

Nobody is keen to discuss the elephant in the room. Throwing additional funding at the UK first-time buyer market, without sufficient supply of housing stock, could see an artificial boost in property prices in the short-term. Is this really helping first-time buyers in the medium-term?

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