Chancellor Jeremy Hunt has scrapped plans for a 99% mortgage scheme for first-time buyers after bankers warned it would push up defaults.
The Treasury has abandoned the proposal that was tipped to feature in next week’s Spring Budget just days after it emerged that the move was on the drawing board, according to a report in The Telegraph.
The scheme would have seen home buyers able to put down a 1% deposit on a new first home, with the government backing the overall loan.
The average cost of a home is £285,000, according to Office for National Statistics data released last month.
This would see homebuyers putting down a deposit of £2,855 to secure a property under these proposals.
But a Treasury insider told the newspaper: “It’s off the table. It was one idea put forward by officials out of maybe 30. Headroom has drastically reduced since then, so we need to refocus the Budget.”
A senior banking source added: “It was just a headline grabber. Most FTBs won’t be able to afford it anyway.”
Some property professionals welcomed the scheme saying it had the potential to see almost 388,000 homes sold under the move, as the decade-long Help To Buy programme achieved.
But critics argued the policy risked pushing up house prices, leaving homebuyers in negative equity and disproportionately benefitting housebuilders.
Many lenders add that they view a minimum 5% deposit as an important protection against default for both the borrower and the bank.
Perenna chief executive Arjan Verbeek says “A 99% mortgage guarantee scheme for short-term fixed rate mortgages is wrong. However, unless we are all happy with the way the current market works against young people, a scheme like this for long-term fixed rate mortgages is absolutely the right thing to do.
“FTBs are struggling to get onto the housing ladder, in part because current mortgage products from mainstream lenders fail to meet the needs of these buyers.”
MPowered Mortgages head of product Peter Stimson last week: “The Chancellor’s move to introduce 99% loan-to-value mortgages is an irresponsible attempt to grab headlines rather than create solutions and is indicative of a government that has run out of ideas.
“A 99% mortgage is, in essence, a 100% mortgage – the 1% deposit hardly contributes to preventing losses, and this will be reflected in the rates, which in all probability sit well above 6%.”
Skipton Building Society’s 100% mortgage product is currently the leading home loan deal of its kind offered by a major lender.
Yesterday, the lender said its Track Record Mortgage had notched up £62.4m in applications and £29.7m of completions since its May launch.
The loan allows tenants with “a strong track record of rental payments” to borrow the total cost of their first property over a maximum of 35 years.
