The case for government-backed 100% mortgages

Those were the days: a mortgage broker in 2003. Image: Getty.

“What ransom will property pay for the security it enjoys?” the Victorian liberal reformer Joseph Chamberlain once asked. When Birmingham’s man of municipal renaissance, reportedly much admired by the PM’s co-Chief of Staff Nick Timothy, posed this question at the height of his political popularity in 1885, he was raising issues of equity and housing. One hundred and thirty one years later, they remain as politically salient as ever.

For many in Britain, the housing ladder has been pulled up, and a whole generation is being locked out of the housing market. In 1991, 67 per cent of 25-34 year olds owned their home. In 2014 the equivalent figure was 36 per cent.

In large part that's because, as house prices have risen, so have mortgage deposit contributions: the average deposit for first-time buyers has more than doubled ovee the last two decades. Lending criteria were severely tightened after the 2008-09 financial crash, meaning many mortgage products were withdrawn from the market; and favourable loan to value ratios (how much you can borrow based on your income and expenditure) went with them.

So to paraphrase old Joe Chamberlain, the question surely now must be: “What ransom will we pay to enjoy the security of property?”

For those unable to rely on the bank of mum and dad, few answers are forthcoming. People want to own their own home – given the choice to rent or buy a home, 86 per cent of British people would buy – and moreover many can comfortably afford a mortgage. But for the majority, deposits of £30,000 and more are a lifetime’s savings away.

At a recent Localis event, Kingston upon Thames leader Kevin Davies called it correctly when he said “affordable housing in London is a myth”. If we want people to get on the housing ladder in the capital and surrounding areas (and in other parts of the UK too), then we’re going to have to be radical in how we go about it.

Last week Localis offered an answer to this conundrum; bring back 100 per cent mortgages backed by a government Deposit Guarantee scheme. The premise is simple: government should provide, up to a fixed price, 10 per cent of a property value, to be held by the lender in a secure account for the length of time it takes the borrower to pay that amount back in mortgage payments. At that point, the government reclaims the 10 per cent it put down in full.

Despite the criticism that 100 per cent mortgages have received in the past, this would be a low risk venture for government to undertake. Such mortgages are not risky in of themselves: they are merely products. The risk lies with the borrower. Maintaining strict lending criteria would ensure that no one who couldn’t afford a mortgage would receive one.

Secondly, the principles upon which this proposal is based have already been established. Government already provides direct cash support for first time buyer deposits with its Help to Buy scheme. But our scheme would be an improvement on this, because it would allow government to recoup its money faster. The market too has signaled that now might be time for a rethink, with Barclays offering a 100 per cent product , but only to people with wealthy enough parents to stump up the security deposit.

Government could step in and directly help an entire generation achieve something special whilst getting its money back in return. We calculated that, if 100,000 people took advantage of the Deposit Guarantee scheme, based on currently repossession rates – and making the ultra-conservative assumption that every repossession would be one of these deposit guarantee first time buyers – on a £1.8bn investment the government’s risk would be approximately £4.5m, less than 0.5 per cent. 

Last week’s supposed policy shift away from mass home ownership towards renting was welcomed by investors and funds, no doubt eyeing up the stable long term income streams from large build to let developments. But while dysfunctional housing markets like London’s do need a greater mix of tenures, ultimately people will still crave the type of stability only owning your own home provides.

Our last female Prime Minister defined her legacy by helping a generation of British people realise the dream of owning their own home. If Theresa May is looking to make policy understandable and meaningful to people’s everyday lives, she could do a lot worse than turn Generation Rent into the next big wave of British homeowners.

Liam Booth-Smith is chief executive of the think tank Localis.


America's cities can't police their way out of this crisis

Police deployed tear gas during anti-racism demonstrations in Los Angeles over the weekend. (Mario Tama/Getty Images)

As protesters took to the streets across the United States over the weekend to express their anger at police killings of unarmed black Americans, it was hard to miss the hypocrisy coming from local authorities – including the otherwise progressive, left-leaning officials who are in power in most major American cities. 

Many US mayors and their police chiefs had issued public statements over the past week that seemed – only briefly, as it turned out – to signal a meaningful shift in the extent to which the Black Lives Matters movement is being taken seriously by those who are in a position to enact reforms. 

The sheer depravity of the most recent high-profile killing had left little room for equivocation. George Floyd, 46, died last Monday under the knee of white Minneapolis police officer Derek Chauvin, while three additional officers helped to hold Floyd down, doing nothing to aid him as he begged for them to stop and eventually lost consciousness. The officers had been attempting to arrest Floyd on suspicion of having used a counterfeit $20 bill at a deli. All four have since been fired, and Chauvin was arrested Friday on charges of third-degree murder and second-degree manslaughter. 

“The lack of compassion, use of excessive force, or going beyond the scope of the law, doesn’t just tarnish our badge—it tears at the very fabric of race relations in this country,” Los Angeles Police Chief Michel Moore told the Washington Post in response to the Floyd case. Meanwhile Moore’s boss, Los Angeles Mayor Eric Garcetti, on Friday claimed that he understood why his city, which is no stranger to police brutality, was protesting. “We absolutely need as a nation, certainly as a city, to voice our outrage, it’s our patriotic duty to not only stand up for George Floyd but for everybody who has been killed unnecessarily, who’s been murdered for the structural racism that we have in our country,” Garcetti said. 

Normally, US police chiefs and mayors tend to ask citizens to withhold judgment on these types of cases until full investigations can be completed. But a 10-minute video recording of Floyd’s killing had made what happened plain. Police chiefs across the country – and even the nation’s largest police union, which is notorious for defending officer abuses – similarly condemned the actions of the Minneapolis officers, in a rare show of moral clarity that, combined with the arrest of Chauvin, offered at least a glimmer of hope that this time things might be different. 

As the events of the weekend have since shown, that glimmer was all too fleeting. 

In city after city over the past three days, US mayors and their police chiefs made a series of the same decisions – starting with the deployment of large, heavily armed riot units – that ultimately escalated violent confrontations between officers and protesters. Images widely shared on social media Saturday and Sunday nights made it clear that members of law enforcement were often initiating the worst of the violence, and appeared to treat protesters as enemy combatants, rather than citizens they were sworn to protect. 

In New York City, two police SUVs were seen plowing into a crowd of protesters, while elsewhere an officer was recorded pulling down a young protester’s coronavirus mask in order to pepper spray his face

In Louisville, the city where Breonna Taylor, a 26-year-old black woman was fatally shot by police on 13 March, state police in riot gear were captured confiscating and destroying protesters’ supplies

In Minneapolis, forces opened fire with nonlethal rounds on residential streets, much to the shock of homeowners standing on their own front porches. 

Images of police pushing or shoving peaceful protesters were almost too numerous to count, including, in Salt Lake City, an elderly man with a cane

In many places, police also targeted journalists who were covering the protests, firing at clearly identifiable media crews with rubber bullets, injuring and even arresting reporters

Some protesters did commit acts of vandalism and looting, and the leaders of cities where that happened generally responded in the same ways. 

First, they blamed “outside agitators” for the worst protester behaviour, a claim that harkens all the way back to the civil rights era and for which the evidence is murky at best

Next, they enacted sudden curfews with little to no warning, which gave law enforcement an excuse to make mass arrests, in some cases violently. 

In a pair of widely criticized moves, Garcetti of Los Angeles closed the city’s Covid-19 testing centers and suspended the entire mass transit system Saturday evening, stranding essential workers on their way home from daytime shifts. Late Sunday night in Chicago, the city’s public school system halted its free meal distribution service for low-income children, citing “the evolving nature of activity across the city”.  

Governors in at least 12 US states, in coordination with city leaders, have since called in National Guard troops to “help”. 

At this point it’s clear that the leaders of America’s cities are in desperate need of a radically different playbook to respond to these protests. A heavily armed, militarised response to long-simmering anger toward the heavily armed, militarised approach to American policing is more than ironic – it’s ineffective. Granting police officers wider latitude to make arrests via curfews also seems destined to increase the chances of precisely the tragic, racially biased outcomes to which the protesters are reacting. 

There are other options. In places such as Flint, Michigan, and Camden, New Jersey – both poor cities home to large black populations – local law enforcement officials chose to put down their weapons and march alongside protesters, rather than face off against them. In the case of Camden, that the city was able to avoid violent clashes is in no small part related to the fact that it took the drastic step of disbanding its former police department altogether several years ago, replacing it with an entirely new structure. 

America’s cities are in crisis, in more ways than one. It’s not a coincidence that the country has tipped into chaos following months of emotionally draining stay-at-home orders and job losses that now top 40 million. Low-income Americans of colour have borne a disproportionate share of the pandemic’s ravages, and public health officials are already worried about the potential for protests to become Covid-19 super-spreading events.

All of this has of course been spurred on by the US president, who in addition to calling Sunday for mayors and governors to “get tough” on protesters, has made emboldening white nationalists his signature. Notably, Trump didn’t call on officials to get tough on the heavily armed white protesters who stormed the Michigan Capitol building over coronavirus stay-at-home orders just a few weeks ago. 

US mayors and their police chiefs have publicly claimed that they do understand – agree with, even – the anger currently spilling out onto their streets. But as long as they continue to respond to that anger by deploying large numbers of armed and armored law enforcement personnel who do not actually live in the cities they serve, who appear to be more outraged by property damage and verbal insults than by the killings of black Americans at the hands of their peers, and who are enmeshed in a dangerously violent and racist policing culture that perceives itself to be the real victim, it is hard to see how this crisis will improve anytime soon. 

Sommer Mathis is the editor of CityMetric.