One of Britain’s largest housebuilders warned that the Bank of England “penalizes the young” when it artificially raises the rates for mortgages of 95pc.
Rob Perrins is the chief executive officer of Berkeley Group. He said that it was “morally right” for the Bank to reduce rules that force lenders to have a minimum amount of capital in their balance sheet when they offer riskier mortgages.
Mr Perrins continued: “Whoever is elected in the next elections will have to take a look at this.” I believe the Bank has focused too much on stability over a long time. You need some risk to maintain a healthy economy. “The banks are extremely well capitalized.”
Mortgage lenders who charge buyers with lower deposits higher rates of interest because they have higher capital requirements.
Mr Perrins stated: “It’s a social issue that the Bank of England must move from stability to economic growth. I believe they have a duty to do so.
Moneyfacts reports that the average rate for a 2-year fixed-rate mortgage for a buyer who took out a mortgage of 95pc on Wednesday was 6.25pc. This compares to 5.47pc if a buyer takes out a mortgage of 60pc.
A buyer who takes out a £200,000 mortgage with a 95% loan will have to pay an extra £100 per month for interest.
Mr Perrins said: “They [the Bank of England] are penalising the youth because the interest rate on a mortgage of 95pc is too high. Rates for 95pc deals should be the exact same as those of 60pc, he added.
The time required to save a large deposit is the main reason why first-time buyers tend to borrow 95pc.
Most people don’t default on their mortgages. “You’re stopping people from buying homes who can afford to pay the mortgage costs,” said Mr Perrins.
He added that the Bank of England must also lower limits on how much mortgage lenders can lend over 85pc of their value.
According to Mr Perrins, the higher rates of 95pc deals will not improve affordability despite a Labour promise to extend a mortgage guarantee scheme that provides government support for 95pc mortgages.
He said that the Tory manifesto’s promise to increase property ownership through a reintroduction of a form Help to Buy equity loans scheme would only lead to higher prices for first time buyers.
First-time buyers will be able access government-backed equity loan of 20pc for new build properties that are eligible. This scheme would be less generous than the previous one, which provided loans up to 40pc for first-time London buyers. It closed in March 2023.
“The old version of the model was super-inflationary, and this new one will be inflationary.” “Unless you can simultaneously increase the supply substantially,” said Mr Perrins.
The Bank of England has declined to comment.
Berkeley announced on Wednesday that it would launch a platform for building and renting out 4,000 houses over the next ten years, in a market that is traditionally dominated by small landlords.
Berkeley reported that new home sales fell 13pc during the year ending May due to a slump in production plaguing construction. Profits before tax fell 7.7pc, to £557m. However, the company raised its profit expectations for next year by 5pc.
Berkeley’s shares rose by nearly 5pc following its results on Wednesday.
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