99% mortgage? Are higher loan-to-value mortgages on the horizon?
99% mortgage scheme set to appeal to young voters being mulled over by the government. Will this help break the barrier to young home ownership, or trigger another overheated property market?
This week it has emerged that Rishi Sunak and his ministers have reportedly been considering plans for a 99% mortgage scheme where a buyer is only expected to put in 1% of the purchase price as a deposit. The prime minister and his chancellor, Jeremy Hunt, have not released any specific details as of yet as the scheme is being kept under wraps, but there is a chance that more information will emerge closer to the spring budget on the 6th of March.
At present, a minimum deposit of 5% is required to purchase a property in almost all cases. Some of these are standard 95% loan-to-value mortgages, where others are still being backed by the government guarantee scheme. This scheme incentivises mortgage lenders to offer lower deposit mortgages by promising to cover some of the losses if a property is repossessed.
It remains unknown if a potential 99% mortgage will also form part of the mortgage guarantee scheme. It may transpire that the government will provide alternative safeguards to lenders.
The government did not deny that a 99% mortgage programme was being discussed and said all schemes remained under review.
First-time-buyers are key to the market and the Conservatives.
Regardless of how a potential scheme is administered, something needs to be done to increase the level of first-time-buyers entering the property market. It was reported that last year (2023), numbers of active first-time-buyers tumbled to their lowest level for a decade. The cost-of-living crisis, high interest rates and lack of affordable housing across the country denting confidence of those looking to buy their first home.
2024 is expected to be an election year. It is thought that offering good news to young buyers could be a useful crutch to Mr Sunak’s ailing government. Interest rates on offer from mortgage lenders have begun to drop recently. We have also witnessed a reduction in house prices year on year. Whether this is sufficient to empower first-time-buyers remains to be seen.
Overheating market.
A sudden influx of potential buyers using a low deposit mortgage, could have the opposite effect on the market. Sellers could use this scheme to begin inflating house values again and trigger another housing bubble. Clearly this will then turn away many of the buyers the scheme intends on creating. Potentially leaving the UK saddled with another sustained period of unaffordable house prices for many.
There will also be those who remember the last time we saw higher loan-to-value mortgages on the market. The issues compounded by Northern Rock and others who touted low, or no deposit mortgages left many customers in negative equity and marooned on high interest rates when the 2008 financial crisis hit. Many of those customers remain trapped to this day.
A 99% mortgage scheme would provide a welcome break for many who are looking to climb the property ladder. There is no doubt about that. However, whilst there will no doubt be protection in place for the lenders to encourage uptake, if there will be any protection afforded to the buyer remains to be seen.
Are you a first-time-buyer. Check out our guide to mortgage terminology here.
Post compiled by Grant Carpenter CeMAP, CeFA – 15 years of regulated mortgage advice.
Please note that the content listed within this remortgage guide is purely for information purposes only and does not constitute advice.
