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.
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The big problem with previous schemes has been that they have only been available on new builds, not traditional FTB properties.
This proposal isn't making clear if it is yet another new build only offer.
Several of my tenants bought under the HTB scheme and it always seemed to be a compromise. They had to buy miles from where their life, friends and work were purely because that's where houses were being built. The only properties they could buy were around double the price of traditional FTB properties with the added expense of a daily commute. Financially it was OK while interest rates were rock bottom but once the first five year fix was up monthly payments soared.
Presumably if people are only putting down 1% deposit the interest rate is going to be pretty hefty. What kind of stress testing will be used? What happens after the initial fix if the property value has dropped a bit?
It comes as a bit of a shock to a lot of second steppers just how much the fees are for moving house. Is it really responsible to make it quite so cheap for FTBs to buy a property that in a lot of cases will be unsuitable when their thoughts turn to having children? I still remember whole decades where people were trapped in houses that were too small with negative equity.
I agree. What is the interest rate going to be in 5 years? Will the monthly mortgage payment be substantially higher than the equivalent rent? And will negative equity creep in as the cost of living crisis extends to 5 or 10 years?
Of Course Jo. Its not to help the first time buyers don’t be daft it’s will be to help the Big Developers & Institution’s with their New multi- storey flimsy modular Flats boxes in the Sky as before.
Does anyone really believe it’s to help first time buyers ? Its corruption.
This is similar nonsense to THE RENTERS REFORM BILL suppose to be to help Tenants ? please which Tenants is it helping is it they one’s that have to pay 20/30% more rent or the ones that’s on the Street under the umbrella like in London, to hide the smoke screen and really pull the wool get rid of Section 21, isn’t the Government wonderful telling them they can have the owners private property it doesn’t wash.
Yes, I agree.
It's probable the mortgage payments will end up being greater than the equivalent rent. After all a lot can happen during a 25 year mortgage period.
If they’re buying my properties…. I’m all in favour 😂, but if not…. They are signing up for massive monthly payments on top of all that goes with ownership.
I cannot imagine how conservative mortgage valuers will be when valuing a property for a 99% mortgage! Pretty sure the valuer will be knocking £10,000s off the asking price meaning most vendors will withdraw from the sale!
If you are not disciplined enough to build a deposit you will probably not be able to afford to run your house after the 99% mortgage.
In my own case, over 50 years ago I had to rent for two years whilst building up a 10% deposit, during which house prices rose by over 20%.
I would have given my right arm to buy 18 months earlier with a 1% deposit and just enough spare cash for a mattress on the bedroom floor.
It all depends on how motivated the potential buyer is to make the necessary sacrifices -but I suspect the money men will kill this scheme by being too greedy on interest rates or conservative on valuations.
On the other hand, there might be an opportunity for other money men to make a killing offering negative equity insurance?
Like all investments, it comes with risk and needs to be considered over the medium or longer term. If the buyer is unsure of plans over the next 1 to 5 years then renting is the lower risk option - but good luck with that nowadays after all the "help" from Shelter and the other anti decent tenant mobs!
This is just another Help to Sell scheme. It will cause first time buyers to over stretch themselves, and in the future, they will be unable to afford the remortgaging of their home. If that happens, they will have to sell up, or take in a lodger, such as some illegal immigrants, or the homeless, as the council deem fit to provide, to help pay the mortgage.
It will save on the £8,000,000 per day spent on hotel Bill's the tax payer has to stump up, to provide a room for the illegal immigrant boat people that keep arriving in their droves in the UK.
It may even allow the councils to afford to buy new houses for the illegal immigrants to live in. If its only a 1% mortgage, a council bought house bought for £150k at 1% interest only will cost just £125 per month. That's a lot better than any hotel fees! The council can provide the monthly payments for the mortgage, and the illegals will be able to purchase the house under their name. Every ones a winner!
I wonder where the new houses will be built? Outside a city somewhere, no doubt.
It's not a 1% interest rate, it's a 1% deposit.
I think they might have trouble paying it bck - 25 yrs at moment is normal for a 10% or more. 1%. I not be advising anyone to go for it.
There's nothing wrong with longer term or even interest only mortgages as they're based on the market value when the house is bought.
The alternative, renting from us, is based on current market rents which in turn is based on current sale prices, which of course, go up with inflation.
I would have gone for this as a first time buyer over 50 Years ago, saved a 20% hike in house prices and 18 months of renting.
@ Robert, we started with an interest only mortgage with an endowments policy that was supposed to pay off the mortgage when it matured. LOL After a few years it became obvious that it wouldn't so we chamged tp repayment. We also got endowment mis-selling compensation as well as a small (much, much smaller than projected) sum when the endowment matured.
I don't understand the obsession with paying off a mortgage. From an IHT perspective it's often better to die with some mortgage debt, especially if it has allowed greater amounts of money to be invested outside the scope of IHT in pensions. As long as there is investment income to service the mortgage in retirement what's the problem?
I loved interest only mortgages. They allowed families to buy big enough houses when they needed them. Self cert interest only was even better and only went wrong when banks stopped demanding a 25% deposit.
Circumstances change. People get pay rises and promotions. Actually paying off a mortgage should really be a matter of personal choice.
Jo
I totally agree. I intend to die still owing £1 million in btl mortgages, which will cost me under £20,000 interest whilst earning over £80,000 gross rental and save my heirs £400,000 in iht.
I prefer to give excess income to my heirs now avoiding any iht rather than reduce my debt and increase my iht liability.
It's over half way to the same issue that caused the financial crash and it's nuts!
There are so many people focusing on solving the lesser housing problems (like bad landlords, rental rates, mortgage deposits, etc) whilst nobody is solving the biggest issue that dwarfs all other issues. The affordable housing stock (both rental and owned).
I think they cannot think of a solution and for a bleedingly obvious reason... it won't make money!
What's more they continue to sell off council property at discounted rate which actually has little or no community benefit but continues to reduce the much needed affordable rental stock.
It's like idiots are in control!
Darren, the financial crash was the first thing that sprang to my mind when I read the article, banks taking more and more risks.
I'll always remember when I bought my first house at about 20 years old, I took a mortgage for about 2/3 of the amount I was offered by the building society and still struggled to pay the mortgage. If I had taken on the full amount they offered me, I would have lost the house within a few years.
I'm all for everyone being in a position to buy their own home and always congratulate my tenants when they tell me that they have bought their own house.
But with today's rising prices, I think another crash may be on it's way. :(
The continued practice of selling off council houses is making the housing crisis worse as the councils can not afford to build more to replace them.
I'm still pleased that I convinced my sister to buy hers when it was first offered. She is now 30 years later mortgage free :)
My current mission is to get my niece on the housing ladder.
If it makes it easier for my tenants to buy my houses I am all for it. I would rather this than kick them out in order to sell. Three down three to go.
Yes, that's a valid point. While higher loan-to-value (LTV) mortgages may allow first-time buyers to make a smaller down payment and enter the housing market with less upfront cash, they often come with stricter affordability requirements. Lenders may require borrowers to have a higher income and a more robust financial profile to qualify for these mortgages.
The rationale behind this is that lenders want to ensure that borrowers can comfortably manage their mortgage payments, especially when taking on a higher loan amount relative to the property's value. Higher income requirements help mitigate the risk for lenders in case of economic downturns or unforeseen financial challenges for borrowers.
As a result, despite the seemingly accessible down payment, some first-time buyers may still face challenges in qualifying for higher LTV mortgages due to income constraints. This can limit the effectiveness of these mortgages in providing broader access to homeownership for certain segments of the population.
It's crucial for potential homebuyers, especially first-timers, to carefully assess their financial situation, including their income stability, debt-to-income ratio, and overall financial health, before considering a higher LTV mortgage. Seeking advice from a mortgage advisor or financial professional can be beneficial in navigating these considerations.
This will just jack up house prices further ! fine by me 👍 but disastrous in general, especially for ftb & the younger generations.
But what about the 10% that is needed upon Exchange of contracts? No one seems to gave thought about thst?
The money men were worrying about this in Saturday's posts.
It's not insurmountable but I suspect there's not enough profit in it for the money men to change their methods of working.
We bought a house without the 10% upfront. The solicitor asked us for the money, we said we didn't have any spare cash as the deposit for the purchase was coming out of the sale of another property. The solicitor still managed to push the sale through. It was either that or no sale.
I'm all for it if it means they can buy the properties they're currently renting... I'd sell mine in a heartbeat to my tenants for market value. I suspect it will only be for new builds and will benefit the fat cats.... Why would they do anything that would help landlords in the least?
Currently trying to sell 2 to current tenants but they are not in a position to buy. They know I can not realistically get the houses to a C and will be forced to sell if /when it comes in.
100% Mortgages are not new , But an Indemnity Policy was taken out with an Insurance Company for the difference between 75% and 100% . This was taken as a premium and added to the loan.
If the Government is going to underwrite this it is very risky because If the Property Goes into Negative Equity , or interest rates Rise . The Owner has no skin in the Game. And has before just hand the keys back.
There’s no solution without huge consequential risk, mostly for the tax payer!
If there is a solution it is to build more houses, but with a 2 trillion deficit, it’s not going to happen for decades.
If my tenants want to buy the house I let to them at market rate and this 99% mortgage offer facilitates this, then I'm happy!
Wait for the fall out!
Another sub prime type crisis coming your way.
Have we not been here before with 100 % mortgages and if I remember correctly we went into recession soon after. If they can’t save a deposit why would they realise they have to pay a mortgage, do repairs and pay service charges etc. no landlord to blame, claim compensation etc. they need put down designer sandwiches, and food deliveries and save some money. People must do their part. Sorry
I believe there was 125% Mortgages too.
Another topic ITV always on about mould & condensation never says wash it down and ventilate rooms, They could make better use of an Air Fryer no smoke or condensation and why is it, it’s nearly always people on Benefits that is the problem
Because Michael those on benefits are as thick as s**t
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