As the government explores ways to increase home ownership, a new mortgage proposal has emerged – Chancellor Jeremy Hunt’s potential plan for 99% mortgages. But experts are divided on whether this high-leverage lending will genuinely assist buyers or simply heighten risks.
99% Mortgages – Helping or Hurting Home buyers?
Chancellor Hunt is reportedly considering a 99% mortgage program ahead of the 6 March budget.
Details on the scheme are scant, but the idea is that it would remove one of the major hurdles — saving for a deposit — for would-be first-time buyers trying to get a foot on the ladder by allowing them to do so with just a one per cent deposit.
The average UK house price is £285,000, according to the Office for National Statistics. A 99% mortgage on a house costing that much would see the mortgagor pay just £2,850 as a deposit. That’s far below the £14,250 they would pay on a 5% mortgage or the £28,500 deposit on a 10% mortgage and so on.
Proponents believe higher leverage could assist more first-time buyers. However, critics argue it encourages un-affordable debt and heightens negative equity risks.
Mortgage Lenders Continue to Increase Rates
The UK’s biggest mutually owned mortgage provider has become the latest lender to charge more for home loans.
Nationwide has increased rates on much of its products today. The move has taken the cost of a five-year fixed rate mortgage on 95% of the value of a home to 5.24%. For first-time buyers also looking to borrow 95% of their home’s value, rates are now at 5.1%.
There was a range of similar hikes last week across high street lenders, including HSBC and Santander.
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Spring budget: first time buyer support
The Budget statement is just 2 weeks away and speculation is mounting over what tax and spend-related policies might be changed to support the housing market.
Improving access to mortgages is one key area being talked about. Another big area of tax for the housing market is the cost of stamp duty facing home movers and first-time buyers.
Stamp duty on residential sales raised almost £13bn in 2022/23. But the cost is not spread equally and the current thresholds for first-time buyer stamp duty relief are due to end in 2025. This would reverse the changes made in the 2022 Mini Budget, where the threshold for full relief from paying stamp duty as a first-time buyer was raised to £425,000.
Zoopla research analysing first time buyer enquiries 6 months to Feb 2024 shows most first-time buyers are looking for homes under the current first-time buyer relief thresholds. Over the last six months, 8 in 10 first-time buyers searching for a home on Zoopla have been looking for homes priced under £425,000 and getting full relief from stamp duty.
If the Government wanted to help first-time buyers in the upcoming budget, one option would be to make the current threshold for first-time buyer relief permanent. They could go further by extending the relief to £625,000, providing support to over 90% of first-time buyer purchases.