Last week it emerged that Boris Johnson plans to launch a new 95% LTV scheme to help first-time buyers get on the housing ladder.
Controversially, the scheme may circumnavigate normal stress test requirements, replacing them with a state guarantee to lower the risk of loans.
Firstly, I think Johnson’s description of the idea as “revolutionary” is borderline comical, since it holds similarities to the now defunct Help to Buy mortgage guarantee which was launched in 2013, which was also about widening the availability of 95% LTV mortgages.
Removing stress tests also arguably puts us back into the pre-global financial crisis past, rather than being a revolutionary idea.
That said, I see pros and cons of removing or changing stress test rules.
While the Financial Conduct Authority’s stress tests have clearly done a lot to remove the cavalier lending practices that helped spark and worsen the global financial crisis, there’s an argument to say they’ve gone too far.
Anecdotally you hear lots of tales of renters being denied mortgages that would cost less than they are spending on rent per month, which doesn’t seem to make much sense.
Mortgages are also stress tested against significant Bank of England base rate increases, when the Bank Rate tends to move slowly and, in the recent past, down as much as up.
Therefore I am ambivalent about the launch of the new scheme.
If this state guarantee helps to de-risk the loans but helps borrowers with healthy incomes get on the ladder, I can certainly see an argument for launching what would be another populist first-time buyer scheme.
Ryan Bembridge, Editor, PropertyWire
