John Oxley: Generous mortgages are a symptom of the housing crisis, not a solution to it

John Oxley is a consultant, writer, and broadcaster. His SubStack is Joxley Writes.

There are now more mortgages available with required deposits of five per cent or 1tenper cent than at any time since the financial crisis of 2008, according to industry reports. That in itself feels like an alarming statistic – a return perhaps to the trends which saw our banks overleveraged and thrown into the crisis when the market changed.

While it may be that capitalisation requirements and regulation will prevent a repeat of that, the abundance of these deals is a further symptom of our ongoing housing crisis and how policy concerns have failed to address it.

These bigger mortgages are a market response to a simple fact: it is becoming harder and harder to save for a deposit. This is not because younger buyers are all spendthrifts, but because those deposits are becoming prohibitively huge.

In South London, for example, an average terraced house costs nearly £700,000. Even at ten per cent, that means putting away over £70,000, often while renting and juggling other rising costs. Across the country, the average deposit has risen from around 11 per cent of median household income in 1994 to over 50 per cent now.

The lenders here see an opportunity, but it is by no means a solution to the housing crisis. It is simply throwing more credit into an asset shortage. It may help those who are in a position to take advantage but will do nothing about the systematic drivers of the crisis.

With low growth on the horizon and even threats of recession from Donald Trump’s tariffs, it is also a recipe for leaving people highly exposed to a change in fortunes.

While older readers will remember much higher interest rates of the past, modern lenders are often in a worse position, even with cheaper loans. The size of the capital loan is much bigger because the costs of housing are much higher. This flows through to higher monthly payments – around £1300 a month at current rates for the average British house price. Should rates rise, many will struggle to keep pace.

The same is true if another economic crisis creates unemployment or squeezes wages: a 95 per cent mortgage could rapidly become unaffordable and flip into negative equity if there is a drop in prices.

Then there is the vast swathe of people whom even these bigger mortgages are still unable to help. The idea that this is a solution misjudges the fundamental nature of the affordability crisis. It is not simply the difficulty of saving for a deposit that makes homeownership out of reach for many; it is the overall cost.

Even if able borrow 95 per cent, purchasers are limited by the multiples of salary that lenders are prepared to advance. In London and the South East, even average homes would require a six-figure salary to be lent enough to actually be able to buy.

Unfortunately, these increased offerings of bigger mortgages mirror a lot of recent government policies on home ownership. They misjudge both the scale and reality of the crisis, making better terms for a few who can take advantage while doing little to address the wider issues – and even, in the long term, making them worse.

Measures like Help to Buy juiced the supply side to the advantage of a few but ultimately just pushed more money into a supply-constrained housing market. It makes sense for lenders, who exist to serve a market, but have been an error by government.

Too much of our approach in government was rooted in outdated understandings of the housing market. Ministers routinely talked about the difficulty of saving for a deposit, for example, while ignoring the fact that for many, such saving was futile because their salary was insufficient for a mortgage for the remaining 95 per cent anyway.

This affected both our own policies and the incentives and encouragements we gave to the private sector. It also betrayed our unwillingness to engage with the root cause of the crisis, the need to build more homes.

The most simple economic lessons show that more money chasing a limited supply is simply a recipe for surging prices. Analysis from the Centre for Cities suggests a shortfall of over four million homes nationally. It is hardly a surprise that facilitating greater demand has failed to deal with the wider issues.

Instead, a fortunate few have been able to purchase houses (still paying very high prices) while the rest have been left even further behind.

It stands to reason that the real solution is the one thing we haven’t tried yet: radically increasing supply.

More housing is the only real way to address this problem and to stabilise affordability. As a party, we have tended – for short-sighted electoral reasons – to push back against this. It was too easy to be the party of protectionism for homeowners rather than that of home ownership, and to ride the electoral high of blocking planning changes rather than supporting them.

Last July showed how futile this was. Even our most NIMBY MPs were swept away by an electoral tide which was especially strong because of the collapse in support among working-age voters who most acutely feel the housing crisis.

The big twentieth-century successes for the Tory Party came by facilitating home ownership, whether through Macmillan’s building programme or right-to-buy.

Our biggest-ever defeat was in part driven by getting this wrong. Allowing the housing crisis to escalate made it harder to win over new voters who felt frozen out of the security of home ownership, and saw vocal Tory MPs turning out to oppose the sorts of houses they wanted to live in.

We ceded ground to a Labour Party that now looks intent on at least some measure of planning reform. The danger now is that we entrench this.

How we oppose Labour’s building plans could be critical to the party’s chances of rebuilding success with ambitious, working-age voters. Our policy platform cannot simply be about blocking attempts to build more and finding new ways to pump up demand, whether through government action like Lifetime ISAs (which in any event we turned into a mantrap for young people’s savings) or encouraging the market to provide more generous (and therefore riskier) financial products.

We have to address the supply issue. Getting more houses, many more houses, built is perhaps the only way around this crisis. It is the only thing that goes to the full range of the issues here – not just rising deposits but overall costs, concerns about quality and the pressure on renters.

Embracing it will give us a chance to shape it with a truly Conservative vision of what abundant housing looks like. Rejecting it will simply see a bigger pool of voters rejecting us.

The surge in high LTV mortgages is a symptom of the scale of the crisis. Rather than an opportunity for borrowers, it shows the pressure they are under. This pressure has been exacerbated by government failings that used the same demand expansion to try and solve what is ultimately a supply crisis.

As we renew our policy offering with an eye on the next election, it is a real chance to get serious about the housing crisis and find a way to win back the voters who are suffering under it.