Boris Johnson sets out plan for benefit claimants to get mortgages

Prime Minister Boris Johnson has unveiled plans to allow benefits to be put towards mortgages in England, as he sought to relaunch his premiership



He made the "benefits-to-bricks" pledge in his first big speech since surviving a bid to oust him by Tory MPs.

Speaking in Blackpool, he also vowed to extend a scheme to allow social tenants to buy their homes.

In a wide-ranging speech aimed at demonstrating he has not run out of ideas and is focused on issues that most matter to voters, Mr Johnson promised more help "over the next few weeks" to deal with 40-year-high inflation driven by energy price rises.

"Global headwinds are strong... but our engines are stronger," said Mr Johnson, adding that "we are on your side" in cutting the cost of fuel, childcare, transport and other living expenses.

"And, while it's not going to be quick or easy, you can be confident that things will get better, that we will emerge from this a strong country with a healthy economy," the prime minister told the audience at Blackpool and The Fylde College.

He said "economic growth" was the answer and he hoped tax cuts - which have been demanded by some Tory MPs - would come "sooner rather than later".

Mr Johnson restated the government's commitment to extending a home-buying scheme, known as right to buy, to housing association tenants.

He said he wanted to extend it "within existing spending plans" and ensure a "one-for-one replacement" of each home sold.

The prime minister also said universal credit recipients would get to choose whether to spend their benefits on rent or put them towards a mortgage.

The government will explore discounting Lifetime ISA and Help to Buy ISA savings from Universal Credit eligibility rules, Mr Johnson said.

Currently, claimants are only eligible for universal credit if they have savings below £16,000, and Lifetime ISAs are included in this limit.

Changing these policies would "help millions realise the dream of home ownership", Mr Johnson said.

Housing benefits, which help low-income or unemployed people pay their rent, cost the government around £30bn a year, much of which goes to private landlords. A person is not usually eligible for the payments if they have a mortgage.

Labour's shadow levelling up secretary Lisa Nandy questioned whether people on benefits could afford mortgage deposits, saying: "This speech was yet more evidence that the prime minister and his tired government are out of ideas.

"You can't solve a housing crisis with back-of-the-envelope policies that have no realistic chance of success."

Liberal Democrat leader Sir Ed Davey said: "Boris Johnson has lost the confidence of his party, Parliament and the country. The desperate attempt to relaunch his leadership today will do nothing to win it back."

Council tenants in England have been able to buy their homes at a discount since 1980, when Conservative Prime Minister Margaret Thatcher introduced the policy.

But the same is not true for people renting from housing associations, unless their property was once owned by a local authority and they lived in it during this period.

Polly Neate, chief executive of housing charity Shelter, called Mr Johnson's housing proposals "baffling, unworkable, and a dangerous gimmick".

Extending the right to buy would "put our rapidly shrinking supply of social homes at even greater risk," she added.

This has the potential to turn into another sub-prime mortgage disaster.

The inept womble is trying anything he can think of to distract public awareness and save his own miserable neck. The game is up though, people aren't falling for it.

And exactly as predicted and right on cue, we are reducing the checks for those taking out mortgages. The last time this happened the result was a total disaster. What makes our imbecilic rulers think things will turn out different this time?

Mortgage affordability checks to be scrapped

Is the Bank of England’s axing of mortgage affordability ‘utter madness’?

Following a consultation, the Bank of England’s Financial Policy Committee FPC has decided to withdraw the affordability test Recommendation with effect from 1 August. This means that lenders will no longer have to verify whether homeowners could afford mortgage payments at higher interest rates.

For freelancers and the self-employed, the news could be welcome, especially as applying for a self-employed mortgage can be extremely stressful and touch and go if you don’t go through a specialist mortgage broker who understands the salary patterns of freelancers, as previously reported by The Freelance Informer in this report, Contractors looking to buy a new home or switch mortgages need to spot these red flags.

However, at the time of writing inflation in the UK was at a hefty 9.1% with interest rates likely to rise more later this year, so do not presume an easy touch.

It will be up to individual lenders as to whether they wish to make any changes to their own lending practices and to determine the timing of any such changes after this date.

For example, the withdrawal of the FPC affordability test does not place any requirement on lenders to take action, as existing affordability assessment practices are subject to the FCA’s MCOB framework and will remain so.

The FPC judges that a notice period of six weeks appropriately balances the desirability of giving lenders notice ahead of the change in policy and the desirability of minimising the risk of borrowers delaying purchases due to uncertainty about how reversion rates and the stress rate might move in future.

“Utter madness”

But not everyone is jumping for joy over the changes.

The Bank of England’s plans to scrap mortgage affordability rules have been branded as “utter madness” by Nigel Green, the CEO of financial advisory deVere, who says the move underscores how the central bank is “failing Britain.”

“This move by the Bank of England is bizarre, to say the least,” says Green.

“The current affordability checks include a stress test to cover rising interest rates in order to avoid another 2007-style credit crunch.

“Some might argue that the risks are pretty low, given the loan-to-income rules would remain intact, but they are risks nonetheless that borrowers and the UK economy can do without,” he says.

David Robinson, chartered wealth manager at Wildcat Law, says scrapping affordability tests now, just at the point they are most needed, is a bit like “chucking the parachute out as your plane engine stops.”

He explains his line of thinking: “The argument is that multiples of earnings are perfectly fine, just as they were during the Credit Crunch. Affordability calculations were introduced post Credit Crunch because part of the failure in the mortgage market was down to just looking at mortgage multiples.

What do affordability checks take into consideration?

“Affordability calculations take into account the other myriad expenditures a household may have,” says Robinson.

“This is especially relevant now as we know that everything from household utilities to the cost of school uniforms is going up. This will increasingly squeeze family budgets and make income multiples less and less accurate as a measure of risk and affordability. Welcome to the lending Wild West, where Banks are once again able to police themselves,” he says.

When will the affordability test be officially scrapped?

The central bank’s Financial Policy Committee said it would withdraw the affordability test from 1 August, according to a statement.

The rule, introduced in 2014, requires lenders to test prospective borrowers’ ability to repay their mortgages in the event that rates rise to a specified stress level.

The deVere CEO goes on to add: “To many, this move will underscore how the Bank of England is floundering in its duty of care and therefore failing Britain in these uncertain times.

“Its response to fighting red-hot inflation, which is at its fastest rate in four decades, has been slow off the mark, hitting households and businesses hard.

“It has failed to mention how Brexit is a negative drag on the supply side,” he adds.

Another credit crisis on the cards?

Green is concerned that global investors are now being warned to hedge against an ‘existential’ crisis with the pound by Wall Street analysts as the British currency faces issues “usually only seen in emerging markets.”

Whilst sterling strengthened 0.2% in May, it remains the third-worst performing major currency this year. It has weakened 8% to $1.2468 in 2022.

Nigel Green concludes: “The Bank of England appears to be becoming increasingly politicised. For me, and many others, this is raising red flags.”

Source: https://www.freelanceinformer.com/self-employed-mortgages-and-financial-products/mortgage-affordability-checks-to-be-scrapped/