Ministers could be at risk of fuelling a fresh house-price bubble, according to industry experts who have warned about a potential “99% mortgages” scheme for first-time buyers that would appeal to young voters before the next election.
The scheme, which is reportedly being considered by the prime minister, Rishi Sunak, and the chancellor, Jeremy Hunt, before the spring budget on 6 March, would only require borrowers to put down a 1% deposit towards their first home.
If approved, the programme would go even further than the 5% deposit previously required as part of the Help to Buy scheme – which expired at the end of March 2023 – under which the government provided assistance at a time when 95% mortgages were scarce. The government recently extended a separate mortgage guarantee scheme, which incentivises lenders to offer larger mortgages by promising to cover a portion of their losses if customers default and a home is repossessed.
Housing is expected to become one of the major battlegrounds before the election, which is likely take place this autumn. And while the programme would undoubtedly help some of generation rent get to on the housing ladder, industry experts warned that ministers needed to consider the consequences of pushing more buyers into the market.
“This radical approach to dismantling the towering barriers to home ownership will sound fantastic to those struggling to find a larger deposit,” said Peter Stamford, the founder and lead adviser for Moor Mortgages, commenting on the speculation about 99% loan-to-value (LTV) mortgages, first reported in the Independent.
He added that there was “a risk it could once again cause the property market to overheat, driving prices up further. It’s a high-stakes gamble and could potentially fuel yet another house price bubble.”
Other brokers warned that such a scheme could expose borrowers to unmanageable debts similar to those still carried by some buyers who were offered 100%-plus mortgages, worth more than the price of their home, during the 2008 financial crash.
“We still see so many people impacted and stuck on the old Northern Rock mortgages,” said Richard Jennings, the founder and managing director of Richard Jennings Mortgage Services, referring to the lender that was fully nationalised during the 2008 crisis.
“This scheme would undoubtedly offer protection to lenders, but what plans does it have in place to protect the borrower? A longer-term, sustainable and affordable model needs to be found to ensure future generations can continue to get on the housing ladder,” Jennings added.
The latest speculation about what can be done to help those struggling to get on the ladder comes after the number of first-time buyers tumbled to its lowest level in a decade last year, with borrowers deterred by high interest rates and years of house price rises that have made the jump to home ownership much less affordable.
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The average earner with a 20% deposit for their first home is now saddled with a monthly mortgage payment equivalent to 38% of their take-home pay – well above the long-term average of 30%, according to recent Nationwide data.
The government did not deny that a 99% mortgage programme was being discussed and said all schemes remained under review.
A Treasury spokesperson said the extension of the mortgage guarantee scheme to 2025 had allowed more than 39,000 households to buy a home and provided “additional support for first-time buyers”.