Ahead of the Spring Statement on the 6th of March, there have been rumours of a prospective 99% mortgage scheme.
The scheme, reportedly propped up by Rishi Sunak and Jeremy Hunt, would only require borrowers to put down a 1% deposit on their first home. The policy is set to go even further than the 5% deposit required for the recently expired Help to Buy Scheme and would fall alongside the extended mortgage guarantee scheme in its ambition to get first-time buyers on the property ladder.
People from across the property market have highlighted the dangers of forming a 2008-style housing bubble due to an excessive fuelling of demand from first-time buyers. Brokers have warned that such a scheme could expose borrowers to unmanageable debts, not too dissimilar to those offered mortgages worth more than the price of their home during the 2008 financial crisis. Moreover, neglecting the supply-side of the housing sector runs the further risk of overheating the property market, further driving up prices.
According to David Hannah, Group Chairman of Cornerstone Tax, the housing market requires more than surface level “political tinkering” to repair its broken incentive structure. He said that these reports of a 99% mortgage loan-to-value mortgage coming from No.10 showcases the “utmost desperation from politicians looking for an easy-fix to one of the most prescient issues for young voters, affordability”. Hannah continued:
“In my view, encouraging first-time buyers to take on increasingly unaffordable debts is not a viable long-term solution to Britain’s housing woes.
The move amounts to piecemeal political tinkering whereby the root causes of the current crisis remain unaddressed, the nation’s dwindling housing stock, record-high interest rates and a stamp duty regime that refuses to shift towards current market trends must be addressed by policymakers if the government wants to get Britain buying again in 2024.
It’s essential to note that the government must also prioritise unfreezing the private rental sector, since mortgage rates have skyrocketed and landlords have had to face the highest tax burden since the second world war, a record number have been forced to leave the property market – causing rents to rise that their fastest level since records began in 2006 due to the dwindling supply of rental stock”
On another note, the National Association of Property Buyers (NAPB) believe the policy is a “quick fix” which doesn’t deal with the deepest issues which currently exist in the UK property market. Spokesman Jonathan Rolande warned:
“Government-backed 99% mortgages for first-time buyers are a quick fix for those unable to save a deposit. And they are a quick fix for a Government who have seen the prospect of votes from the young evaporate, thanks to the housing crisis.
It may prove a popular move. There will be a short time when younger people, still stuck in the family home, or in expensive short term rentals will be able to buy their own home, with all of the benefits that offers.”
But outlining the longer-term concerns the NAPB have, Mr Rolande continued:
“Within a very short time, adding so many potential new buyers to the market will inevitably drive up prices, making it even more difficult for buyers to enter the market in a year or so. That’s because, by increasing demand without increasing supply the property market becomes a game of musical chairs – same chairs, more players.
Successive Governments have failed to get to grips with the crisis caused by increased population and smaller households. Increasing buyer demand has never ended well. By making it easier for one buyer, you make it more difficult for another. There is no time to solve the housing crisis before the election. This policy, if it happens, will make the situation worse.”
