Expert comment: 95% mortgages for first-time buyers creates further risk

Sam Wood
London skyline by Robert Bye on Unsplash

In response to the recent Government mortgage support announcement, Lecturer Alfred Duncan, one of the University of Kent’s experts from the School of Economics, said:

‘Prime Minister Boris Johnson’s recent announcement of planned government support for 95% mortgages would encourage an increase in high risk, low deposit mortgage loans. This would leave families and the wider UK economy more exposed to future economic shocks. Furthermore, these plans would make it more difficult for lending regulators to fulfil their financial stability mandates.

‘The existing mortgage lending rules were enacted to help maintain financial stability and the soundness of financial institutions, the mandates of the Financial Policy Committee and the Prudential Regulation Authority.

‘If mortgage lending rules are relaxed, or their effects weakened by these new government mortgage guarantees, other restrictions may need to be introduced or tightened to compensate accordingly. This could involve tightened bank capital requirements or business lending rules, either of which could reduce investment and economic growth.

‘Policies targeting housing affordability should focus on house building and on support for deposit savings, for example by enhancing either of the existing deposit savings schemes, the Lifetime and Help-to-Buy ISAs. Increased housing supply and support for deposit savings increase housing affordability in a more sustainable way than mortgage guarantees and relaxed lending regulations.’

Alfred Duncan is a Lecturer in Economics and joined the School of Economics in August 2016. His main research area is macroeconomics with incomplete financial markets. Some of his current research projects focus on how business cycle risks are shared in decentralised trade and the consequences for this trade on business cycle volatility and labour market outcomes. 

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