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Finance Minister Jeremy Hunt is setting out plans for a 99 per cent mortgage scheme ahead of the Budget, according to officials, as the Conservatives seek to reassure voters that the party is on the side of homebuyers.
The scheme will only require homebuyers to put down a 1 per cent deposit to purchase their first home, with the government acting as backer for the loan. The proposals aim to support people struggling to get a place on the housing ladder.
Prime Minister Rishi Sunak has indicated he is determined to propose new housing measures in the coming weeks to reassure voters that his party represents the interests of homeowners.
Sunak said in a recent article in The Times that he “understands[s] People got angry at this dream [of home ownership] “It seems too far away for many, especially the younger generation.”
Although government figures warned that no final decision had been made, they said a new Treasury-backed mortgage scheme was likely to be in the Chancellor's Budget on March 6.
But the proposals have some housing experts and lenders concerned about the risk that buyers will end up with negative equity, where their debt ends up being greater than the value of the home.
Neil Hudson, a housing market analyst at Residential Analysts, said: “There's obviously going to be more risk of negative equity with this, you're also going to be paying a premium mortgage interest rate, and that doesn't necessarily address the issue of high rates.”
Lucian Cook, head of residential research at Savills, warned that any scheme that boosts buyer numbers must be matched by measures to increase housing supply.
“You may be addressing the deposit affordability problem, but you still have the mortgage affordability problem,” Cook said.
One industry figure warned that the cost of loans is likely to be higher than those in the lower loan-to-value ranges.
“The Prudential Regulation Authority may have concerns about banks' exposure to mortgages at 99 per cent loan-to-value, even if partly government guaranteed, and could look for additional capital buffers to support lending at this loan-to-value.” He added.
In 2021, the government introduced a 95 per cent loan-to-value mortgage scheme, which officials say has helped nearly 40,000 homebuyers.
Under the new scheme, buyers will only have to pay £2,850 for a home with an average UK price of £285,000, compared to a deposit of £14,250 with a 95 per cent mortgage.
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Sunak's party is struggling to engage young voters – who have found it increasingly difficult to get onto the property ladder – with only a small portion of under-40s willing to support the Conservatives in the general election, according to the latest opinion polls.
House prices in the UK have risen by 60 per cent in the past ten years. Meanwhile, the average age of a first-time buyer has risen to 32 years from 29 years in 2011.
The end of the Help to Buy Equity Loan programme, which had been a totemic Tory policy, has left the government searching for a new high-profile housing policy to counter Labour's promise to be the 'party of homeownership'.
A recent Opinium poll showed that 34 per cent of voters thought Labor would do a better job of managing “house prices”, compared to just 16 per cent who favored the Conservatives.
