The government has reportedly scrapped the 99% mortgage scheme ahead of the 2024 Spring Budget.
The scheme was designed to allow more first-time buyers to get on the property ladder with a small deposit of 1% with the government offering banks financial guarantees to encourage them to hand out mortgages covering the other 99% of the property value.
However, it was recently and quietly scrapped before it was to be announced in tomorrow’s Spring Budget.
The scheme’s axing has been welcomed by several mortgage brokers, suggesting it would have inflated housing prices and made borrowers susceptible to negative equity if property value declines as well as higher monthly payments or longer-term mortgages.
Commenting on the development, Jonathan Bone, mortgage lead at Better.co.uk, said: “The allure of a 99% mortgage is undeniable – it offers a swift entry onto the property ladder for renters, eliminating the need for years of saving for a hefty deposit. Moving from renting to owning opens up doors for first-time buyers who have the opportunity to build equity in their home, potentially turning a profit as property values increase, unlike waving goodbye to your money when renting.
“Initially, the government hinted at backing part of the loan, which would have helped to mitigate lenders’ risk, making it more enticing for them to participate. However, there are significant drawbacks to mortgages with minimal deposits. They tend to come with higher interest rates, making borrowers susceptible to negative equity if property values decline.
“Had the government’s proposal materialised, many first-time buyers might have found themselves stuck paying expensive mortgages, struggling to keep up with repayments and unable to remortgage elsewhere. The scheme could have also caused a surge in demand, further inflating house prices, and exacerbating the risk of negative equity for future buyers if the market faltered under the strain.
“Fortunately, abandoning this ill-conceived policy brings a sigh of relief. It’s a reassuring outcome, sparing first-time buyers from the potential pitfalls of such a misguided approach.”
