Mortgage advisers have raised concerns government plans to introduce 99% mortgages would cause a house price bubble and put more borrowers at risk of financial difficulty.
There have been reports the Chancellor Jeremy Hunt and Prime Minister Rishi Sunak are considering introducing plans for the mortgage, which would require only a 1% deposit, at the Spring Budget on 6 March.
The scheme is part of the government’s housing strategy and aims to help more people on the property ladder. Under the scheme, borrowers with small deposits will be able to take out loans for 99% of the value of the property they wish to buy.
Currently, unless new buyers have support from a guarantor, there are no mortgages for borrowers with less than a 5% deposit. The exception to this is Skipton Building Society’s Track Record deal, which is available to reliable renters who fit the lender’s criteria.
In fact, mortgages with deposits as low as 1% were shelved in the financial crisis, when many people fell into negative equity as a consequence of taking out such high loans.
And it is for this reason many mortgage professionals have raised concerns about the return of 99% deals.
Kirsty Wells, director at Blueprint Mortgages & Protection, speaking via the Newspage agency was among those who raised concerns.
“It is amazing to have something to help first-time buyers get on the property ladder,” she said. “especially those that have fallen into the rental trap and are unable to save a deposit.
“However, it makes me nervous that the property market only has to drop very slightly before the borrower is then in negative equity and a mortgage prisoner.
“Back in 2004 I bought my first property by using the 100% mortgage and it was great whilst prices were shooting up but then in 2008 when they dropped like a stone it was scary to then be in negative equity.
“I definitely would not be encouraging clients to be putting themselves in a position to have to go through that.”
Vote winner ahead of the election
With an election looming this year, there were others who feared the scheme was nothing more than a vote winner.
Hannah Bashford, director at Model Financial Solutions, also speaking through the Newspage agency, said: “It’s great to see that first-time buyers are still on the political radar but in practice is this anything more than a bid to try and sway the generation rent vote?
“Time will tell and it will be interesting to see how in practice this could be deployed and what the terms will be. I’m glad to see that there is some innovation in the first-time buyer space but are higher mortgages and lower deposits really the answer?”
In favour of 99% mortgages
Not everyone was against the scheme, and one broker said at 99% mortgage scheme, if rolled out with care and attention to detail, could be successful in achieving its goal.
Mark Harris, chief executive of mortgage broker SPF Private Clients, says: “99% mortgages could be a good idea in the appropriate circumstances.
“With added stamp duty costs, a 99% mortgage can look identical to a 95% mortgage for previous generations. Add in the fact that saving for a deposit while renting is practically impossible, this could be a solution.”
He added: “Unlike 100% mortgages in the past, lenders now have more stringent assessments to perform to assess affordability and stressing. There is less risk of borrowers over-stretching themselves.
“Naysayers will no doubt focus on the fact this is a policy to increase demand for housing not supply so inevitably the effect on house prices will be upwards.”
What do you think of the 99% mortgage scheme? Is it the answer to help generation rent get onto the property ladder or is it more likely to plunge people into financial difficulty? Comment below
