February 26, 2024 9:11 am

Insert Lead Generation
Nikka Sulton

Differing perspectives emerge within the rental and property sectors regarding the contentious notion of facilitating first-time buyers with a mere one percent deposit and government-backed 99 percent mortgages. News sources like the Financial Times and the Independent have hinted at a potential government initiative exploring this concept, representing a radical departure from the previous Help to Buy scheme, which permitted some buyers to secure new build houses with only a five percent deposit. According to reports grounded in leaked government information, under this proposed approach, mortgages from banks and building societies would carry government guarantees.

The potential shift has sparked debates and discussions within the property industry, with proponents highlighting the prospect of improved accessibility for first-time buyers. Critics, on the other hand, express concerns about the associated risks and potential consequences for the broader property market. As the government contemplates this measure, the industry awaits further details and clarification on the proposed structure and safeguards to address the diverse perspectives and uncertainties surrounding this potential shift in housing policy.

Ben Thompson, deputy chief executive at Mortgage Advice Bureau, believes that the introduction of 99 percent mortgages could be a game-changer for thousands of aspiring homeowners, particularly those in the rental sector grappling with escalating rents. The prospect of a one percent deposit, coupled with government-backed mortgage guarantees for banks and building societies, presents a potentially radical shift reminiscent of the earlier Help to Buy scheme, which allowed some buyers to secure new build houses with just a five percent deposit.

While the idea of 99 percent mortgages is seen as promising, Thompson underscores the need to address broader issues such as housing supply and planning. Despite the potential hurdles, he sees this initiative as a crucial step in aiding individuals in their quest to step onto the property ladder, offering a glimmer of hope to those struggling to amass substantial deposits in the face of soaring property prices.

In the context of evaluating first-time buyers, Thompson suggests adopting a nuanced approach, similar to Skipton building society’s emphasis on scrutinizing rental track records. By ensuring that applicants meet affordability criteria through sensible underwriting and pricing strategies, this approach not only acknowledges the financial challenges faced by renters over the months but also holds the potential to elevate homeownership levels and inject vitality into the property market.

For those living with parents or family, the consideration of rent in the homeownership equation takes a different form. Despite not having traditional rental payments, a 99 percent mortgage could still be a game-changer for this demographic, offering a chance to realize homeownership dreams, potentially at a more fitting age. While the success of such a scheme hinges on the specifics, the underlying concept appears promising. If executed thoughtfully and comprehensively, this initiative could mark a significant step towards fulfilling the aspirations of many prospective homeowners.

Mark Harris, the chief executive of mortgage broker SPF Private Clients, adds his support to the idea, highlighting the positive impact of initiatives aiding the transition from ‘generation rent’ to ‘generation own.’ Recognizing the challenges faced by first-time buyers and their pivotal role in the market’s proper functioning, Harris contends that facilitating their entry into homeownership is essential. Despite endorsing the 99 percent option as a sensible solution for those grappling with saving for a deposit amid high rents, Harris emphasizes the critical need for meticulous underwriting to ensure the scheme’s viability.

As the housing landscape undergoes potential shifts, addressing the difficulties faced by those striving to become homeowners becomes paramount. The notion of a 99 percent mortgage resonates as a practical solution, particularly for first-time buyers contending with high rental costs that hinder deposit savings. While the devil lies in the details, the broader impact could be substantial, breathing fresh life into the aspirations of those navigating the path from renting to owning a home. The careful implementation of such schemes is crucial, ensuring affordability and sustainable homeownership opportunities for a broader demographic.

The efficacy of any scheme extending support to potential homeowners hinges on its applicability to all properties, not solely favoring new builds. While acknowledging the success of Help to Buy, it’s essential to ensure that such initiatives don’t disproportionately benefit house builders. A key concern lies in the delicate balance between demand and supply; boosting one without a corresponding increase in the other could lead to a surge in property prices. Additionally, borrowing at high loan-to-values poses the risk of negative equity if property values decline.

Anticipating potential conditions similar to Help to Buy, such as a loan-to-income cap of 4.5 times income, and the likelihood of a repayment-only approach, cautious considerations include passing lenders’ affordability assessments and stress tests at elevated rates. Unlike approaches like Skipton’s Track Record, where rental payment history influences mortgage affordability assessments, such nuances may not find application. If the scheme aligns with the existing Mortgage Guarantee Scheme, a property value cap of £600,000 could be imposed on purchases under the initiative.

Contrary to the generally optimistic stance, Knight Frank, an estate agency and financial services provider, takes a more cautious view, categorizing the idea as high risk. Their unique perspective introduces the concern of potential negative equity, suggesting that the proposed scheme might inadvertently trigger a wave of such precarious financial situations.

The success of the proposed scheme hinges on how lenders price these mortgages, with Simon Gammon, managing partner at Knight Frank Finance, emphasizing that competitive rates will determine substantial uptake. However, achieving competitive rates might require a significant government underwriting of loans, potentially escalating house price inflation and exposing buyers to negative equity if prices fall. Gammon sees this strategy as high-risk, highlighting the limited options available to the government for meaningful short-term assistance to first-time buyers.

This concern is shared by Jeremy Leaf, a former residential faculty chair at the Royal Institution of Chartered Surveyors, who anticipates that while such mortgages may aid struggling first-time buyers, they could intensify demand, leading to increased house prices and heightened negative equity risks. Leaf emphasizes the need for a concurrent and clear program aimed at boosting supply to prevent unchecked property price escalation.

Despite concerns, the house building industry supports the idea, arguing that increased homeownership is contingent on more people being able to purchase homes, necessitating such measures. In contrast, Labour and the Liberal Democrats oppose the proposal, asserting that it fails to address the fundamental issue of insufficient affordable housing supply.


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