Title: Government Considers Reintroducing 99% Mortgages for First-Time Homebuyers
Lead: The UK government is reportedly considering reintroducing 99% mortgages as part of its plans to support first-time buyers. The scheme, which could go beyond the previous Help to Buy initiative, is aimed at assisting homebuyers struggling to save for a deposit. While some experts welcome the move, others express concerns that it may lead to an increase in house prices.
In an attempt to address the challenges faced by first-time buyers, the government is exploring the possibility of introducing a scheme that would allow borrowers to take out 99% mortgages, according to reports. The proposal, set to be announced in Chancellor Jeremy Hunt’s spring Budget on 6 March, aims to provide a solution for potential buyers who find it difficult to save for a deposit.
The previous Help to Buy scheme offered 95% mortgages on new builds but ended in March. The potential reintroduction of 99% mortgages would provide an even higher loan-to-value ratio. However, mortgages with such high loan-to-value ratios have a controversial history. Prior to the 2008 financial crisis, it was possible to borrow 100% or more of a property’s value, resulting in negative equity and high interest rates for many borrowers when mortgage lenders collapsed.
Mark Harris, CEO of mortgage broker SPF Private Clients, supports the idea, stating that 99% mortgages can be beneficial under appropriate circumstances. He points out that due to added stamp duty costs, a 99% mortgage is similar to a 95% mortgage for previous generations. In addition, he mentions existing options such as Skipton Track Record and Barclays Springboard, which offer 100% mortgages with stricter affordability assessments and stress testing to prevent borrowers from overextending themselves.
However, critics argue that the proposed scheme may only provide a short-term political fix and could exacerbate the issue of rising house prices. Jonathan Rolande, founder of the National Association of Property Buyers, warns that offering 1% deposits may temporarily benefit some young individuals, but it would not solve the underlying problem and would likely push house prices higher.
The introduction of 99% mortgages would aim to assist first-time buyers who struggle to save for a deposit amidst skyrocketing rents. Currently, lenders generally require a 10% deposit from first-time buyers. By lowering the deposit requirement to just 1%, the government hopes to make homeownership more accessible to a broader range of individuals.
A potential concern with reintroducing high loan-to-value mortgages is the risk of borrowers being burdened with unaffordable repayments if interest rates were to rise. Lenders would need to perform stringent assessments to evaluate affordability and assess the borrower’s ability to withstand potential economic shocks.
In summary, the UK government is exploring the reintroduction of 99% mortgages to support first-time buyers. The move aims to address the difficulties faced by individuals trying to save for a mortgage deposit. While some experts see this as a positive development, others express concerns that it may contribute to rising house prices and fail to provide a long-term solution. The potential scheme would go beyond the previous Help to Buy initiative, offering a higher loan-to-value ratio, but lenders would need to ensure responsible lending by performing thorough assessments.
