If a mortgage exists but no one buys, does it really exist?
It is not often mortgages and metaphysics meet, but the availability of high LTV mortgages coupled with their lack of sales makes us question their existence, if they are available but not being sold are they really there?
Mortgage broker Trussle reported that despite the UK Government’s plans to turn generation rent into generation buy 95% LTV mortgages made up just 1% of mortgage sales in July 2021.
Trussle reported that there are currently 49 lenders offering 95% mortgages and in total there were 372 different deals on offer, so, in theory, there is no shortage of supply, but they seem to disappear when people try to buy. It is not clear whether the issue is strict credit scoring or that aspiring homebuyers do not have a high enough salary, even with a 4.5x income multiple to be able to buy a home.
High LTV loans do not turn Generation Rent into Generation Buy
What is clear though is that at a high level, high LTV mortgages alone are not able to turn generation rent into generation buy. The real issue is the lack of deposit. House prices have, in our view, become divorced from earnings, therefore even the highest income multiples are unlikely to secure a bigger enough mortgage to buy a home without a sizeable deposit.
Generation rent does not need high LTV mortgages to turn them into Generation Buy, it needs help with deposits.
Help to Buy has certainly filled the deposit gap for those buying in the new build sector, but despite its name, Help to Buy was conceived to kick start the housebuilding sector as it rose from the ashes of the Global Financial Crisis. Perhaps Help to Build would have been a better name or ‘Help to Sell’ if you are cynical.
The new build sector accounts for around 15% of all UK housing transactions. So for all its rhetoric, the UK Government appears to do little to help the biggest contingent of generation rent. If the scheme is to ‘help to buy’ why is it only available for new build?
Does Help to Buy add fuel to the house price pyre?
Some say Help to Buy is inflationary, but its impact on house prices, if any, is dwarfed by the size and scale of the Bank of Mum and Dad. The Nationwide’s Future of Home Report found that around 40% of First Time Buyers were assisted by the Bank of Mum and Dad and few, if any, are calling for the shutters to be brought down on the Bank of Mum and Dad.
If you can’t beat them, help them
The answer, in our view, isn't to reduce the numbers of those being helped to buy their homes, but to increase the numbers of being helped. We believe that fractional homeownership could help turn generation rent into generation buy.
Fractional ownership dismantles the barriers to homeownership, allowing households to put money into the housing market as they can afford to. Pooling of fractional investments also creates a societal good, a group of unconnected investors could provide an equity loan to a first time buyer. The first time buyers is enabled to buy and live in their own home, whilst the investor get exposure to the housig market without the hassle of buying and maintaining a whole home.
Fractional homeownership creates a class of homeownership for all.
Solving multiple problems
Equity loans solve the mortgage multiple problem. Mass market homeownership and intergeneration housing wealth transfers have divorced house prices from wages and it is very difficult, in our view, for house prices and wages to be reconciled.
We cannot reduce house prices, but if we put fractional ownership into the housing market we believe we can take house prices out of the affordability debate and that will indeed help turn Generation Rent into Generation Buy.