Rishi Sunak and his Tory government colleagues have come under fire from many corners of the British media and economics industry after announcing a government-backed 95% mortgage programme.
The government claims that by providing 95% mortgages, first-time buyers and other potential homeowners who have long been priced out of homeownership will finally be able to get on the property ladder.
But, in repost, critics of the government have said the initiative is a lot of hot air – a policy designed to look good and win over some younger, perhaps more left-leaning voters, but one which, in reality, is far better for banks and big developers than it is for wannabe homeowners.
Furthermore, Labour is leading an attack on the Tory policy by highlighting that so many young people can’t afford homes because of the country’s ongoing economic struggles, lack of growth, and lack of prosperous jobs for young people, not because of unaffordable mortgages,
Thangam Debbonaire, Labour’s Shadow Housing Secretary, says:
“Homeownership has fallen in the decade the Conservatives spent weakening the foundations of our economy.
“If the Chancellor wants to help young people get on, he should deliver a Budget with a relentless focus on jobs and growth.
“What young people need to get on is the secure future that comes with a decent job and genuinely affordable new houses to be built for them to make homes of, not going back to the days of sky-high mortgages.”
The gulf between right and wrong
It’s not just political differences fuelling this backlash against Sunak’s policy, there is also a history of economic reports published in the UK which point clearly to an increasing disparity between the affordability of life and the average British salary.
Authored in 2014, a paper from Legal & General’s Group Chief Executive, Nigel Wilson, reads:
“The UK risks a situation where the housing market becomes dependent on the props of state funding and guarantee, with withdrawal politically impossible.”
The paper looks back at the previous few decades of house prices and average household income and shows that, in 2007, house prices were six-times higher than earnings. In fact, between 1971 and 2001, UK house prices rose at twice the speed for the rest of the European Union nations. This would not be a bad thing if, and it’s a big IF, wages had followed a similar growth pattern. Sadly, they did not.
Then, between 1997 and 2010, the average household income required to buy a house doubled from £20,000 to £40,000. In this same time period, average wages rose by just 50%.
Be careful who you listen to
There is a common narrative in housing that says lack of adequate housing supply is responsible for young people finding it increasingly unaffordable to buy their own home.
This is a belief that the Conservative government has long pinned its colours to, resulting in a series of ‘helpful’ schemes and initiatives which have done little to help those who most need it, instead making life much more jolly for big banks and developers.
In 2019, the UK Collaborative Centre for Housing Evidence argued against this popular political stance by saying: “the growth in house prices in the UK over the past 23 years does not appear to have been the result of inadequate supply”. Instead, the report talks about the ongoing ‘financial crisis’ impact on wages’ as the most pressing issue.
It seems the best thing for us to do is try and dig a little below the surface when politicians and governments make big announcements like 95% mortgages. It sounds great, as if it will help the thousands if not millions of UK citizens who never thought they’d be able to afford to buy a home of their own. But, look a little closer and that utopian image starts to melt into the canvas.
MIght it be that government-backed 95% mortgages is an easier, more affordable, and more palatable policy for a government to sell to the people than an acceptance that we’ve been getting things wrong for the past 30-40 years?
If we really want to help our younger generations, sacrifices must be made and those who are used to having everything whenever they want it will have to get a tiny bit less in the name of building a better, more sustainable economic future.
And because that’s such a difficult, daunting task, it’s easier to float an idea about affordable mortgages and hope everyone takes it at face value.