Rental sector and property industry views are split over the controversial idea of allowing first time buyers to put down a one per cent deposit and to get government-secured 99 per cent mortgages.

The Financial Times and the Independent news titles have suggested that the government is considering one per cent deposits for first time buyers as a radical variation of the previous Help to Buy scheme, which saw some buyers able to purchase new build houses with only five per cent deposits. Banks and building societies would have their mortgages guaranteed by the government, according to reports based on government leaks.

Ben Thompson, deputy chief executive at Mortgage Advice Bureau, says: “99 per cent mortgages could help the thousands of people dreaming of becoming homeowners – particularly renters, who have seen rents rise and the dream of homeownership constantly moving away from them as they scramble to save large enough deposits. 

“Although many things will need also to be addressed now, such as the level of housing supply and planning for example, 99 per cent mortgages could be the initiative desperately needed to help many people climb that first rung of the ladder.

“For now, the real focus should be on looking at rental track records when assessing first time buyers, much as Skipton building society has. In ensuring that applicants meet the affordability criteria (along with sensible underwriting and pricing), a move like this would acknowledge the costs that renters have been meeting month in, month out, increase homeownership levels, while also stimulating property transactions and boosting our flatlining economy. 

“Although for those living with parents and family, rent as such can’t be taken into account the same way, a 99 per cent mortgage would also enable these people to achieve their homeownership dreams most likely at a more appropriate age too. The devil, as always, will be in the detail. Nevertheless, it could be an exciting move that would fulfil many aspiring homeowners’ dreams, and executed in the right overall way should be applauded and welcomed.”

Mark Harris, chief executive of mortgage broker SPF Private Clients, is also a supporter of the ideas and says: “Any scheme which assists those wanting to move from ‘generation rent’ to ‘generation own’ should be applauded. If first-time buyers are struggling to get on the ladder, it has a knock-on effect for the rest of the market, as it can’t function properly. But as with anything, the devil will be in the detail.

“If people can afford mortgage payments but are struggling to save up for a deposit because of high rents, then a 99 per cent option makes sense but it needs to be carefully underwritten. 

“Any scheme should apply to all properties, not just new build. Help to Buy worked well but particularly for house builders, which is not the aim. If you boost demand without boosting supply, it is likely that property prices will rise again. There is also the risk of negative equity if property prices fall when you are borrowing at high loan-to-values.

“We would expect there to be conditions around loan-to-income as was the case with Help to Buy, with a cap of 4.5 times income. It is also likely to be repayment only and borrowers will have to pass the lender’s affordability assessment and stress tests at higher rates. It is unlikely that an approach such as Skipton’s Track Record, where evidence of paying rent over a period of time is taken into account when assessing what the borrower can afford the mortgage, will be utilised. If the scheme is an extension of the current Mortgage Guarantee Scheme then there would be a cap of £600,000 on the property value bought under the scheme.”

However, estate agency and financial services provider Knight Frank has taken the unusual step of suggesting the idea is high risk and could even provoke a spate of negative equity. 

Simon Gammon, managing partner at Knight Frank Finance, says: “The popularity of the scheme will depend on how the lenders opt to price these mortgages. If they are competitive, take up will be substantial, but getting rates competitive will require the government to underwrite quite a sizable proportion of the loans.

“Fuelling demand to this degree without a massive surge in housing supply will undoubtedly fuel house price inflation. There is also the very real prospect that any falls in house prices will leave many buyers in negative equity, with the taxpayer on the hook in the unfortunate circumstance that borrowers aren’t able to meet their payments.

“It’s quite a high risk strategy, and it illustrates just how few options the government has if it wants to help first time buyers in meaningful numbers in the short term.” 

Gammon’s concern is echoed by Jeremy Leaf, a former residential faculty chair at the Royal Institution of Chartered Surveyors. 

He says: “While such mortgages may help first-time buyers who would otherwise be struggling with deposit raising, they are likely to boost demand which in turn may push up house pries, create greater negative equity risks and make trading up very expensive if rates fall. To keep property prices in check, what is needed is a clear, deliverable programme aimed at increasing supply, which is implemented at the same time.”

The house building industry has backed the idea, saying it can’t build more homes – and thus boost supply – unless more people can actually be able to purchase them.

Labour and the Liberal Democrats have opposed the idea, saying it would do nothing to boost the supply of affordable properties.