In a move that has stirred significant controversy, the government is reportedly considering a groundbreaking proposal to allow renters to secure mortgages with just a one percent deposit. This idea, disclosed over the weekend, is being framed as a radical variation of the previous Help to Buy scheme, which permitted some buyers to acquire new build houses with a mere five percent deposit.
According to The Independent online newspaper, under this potential scheme, banks and building societies could be granted government guarantees for mortgages, possibly covering up to 99 percent of the property value. However, the details of the proposal remain scarce, leaving questions about how it would assist first-time buyers in passing payment affordability tests, even with reduced deposits.
Mortgage brokers are approaching the concept with caution, expressing concerns that the government’s guarantee of 99 percent mortgages, without concurrent efforts to boost housing supply, could lead to a surge in house prices. Peter Stamford of The Mortgage Unit warns, “It’s a high-stakes gamble and could potentially fuel yet another house price bubble,” while Charles Breen, founder of Montgomery Financial, emphasizes the risk of borrowers slipping into negative equity at such high loan-to-value ratios.
Stephen Perkins, managing director at Yellow Brick Mortgages, highlights the challenge the government faces in either funding or significantly guaranteeing lenders for the added risk, particularly in the current economic climate. Perkins notes, “Whilst this could help remove one of the largest barriers to homeownership and the need for family support, borrowers will still need to be able to afford and obtain a 99 percent mortgage, which, based on the huge disparity between house prices and incomes, means such a scheme would, in fact, only benefit a small minority.”
Labour deputy leader and shadow housing secretary Angela Rayner criticizes the proposal for failing to address the supply of affordable homes or reform the broken planning system. An unnamed senior Labour figure adds, “The truth of this issue is that you can’t have a serious housing policy without a real plan to drive up supply.”
The Liberal Democrats also oppose the idea, pointing out the irony of the party responsible for higher mortgage rates now advocating for 99 percent mortgages for first-time buyers.
The proposition drew immediate criticism from Generation Rent group’s leading activist, Dan Wilson Craw. Posting on his personal Twitter account, Craw expressed his concerns about the potential risks associated with increased demand and warned against playing with fire without first establishing housebuilding targets.
As the government contemplates this controversial move, the debate continues over its potential impact on the housing market and the risks it may pose to both borrowers and the broader economy.