The government has reportedly abandoned its proposal to introduce 99% LTV mortgages for first-time buyers.
The initiative was predicted to be announced in next week's Budget, however a Treasury insider has since told the Telegraph that “it’s off the table", adding: "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.”
The government-backed scheme would have seen first-time buyers able to put down a 1% deposit, however many industry experts were critical of the proposals, warning that it could leave buyers exposed to negative equity.
Ying Tan, CEO at Habito, commented: "Interest rates are likely to be higher for a 99% mortgage, along with more stringent underwriting. How realsitic will it be for a consumer to only need 1% deposit, given the likely affordability challenges for getting the 99% mortgage? In addition to such schemes, it's imperative the governement tackle the underlying challenge of a lack of affordable homes, otherwise a housing bubble will be created. This could push prices up further, beyond the grasp of a first-time buyer."
Stephen Perkins, managing director at Yellow Brick Mortgages, said: "Whilst many do struggle to raise deposits, the growing disparity between house prices and wages means that the maximum amount an average couple could borrow at 99% LTV would not be enough to buy even a starter home in 90% of the country. Like the 100% scheme already available, it will generate many enquiries but then go on to disappoint many of them with the reality that taking away one barrier, still leaves many others on the housebuying steeplechase course."
Michelle Lawson, director at Lawson Financial, added: "Affordability and stress testing is more the issue than the deposit for first-time buyers in most areas due to the house prices. A 1% deposit is dangerous as most would take a long term of say 30, 35 even 40 years so the borrowers actually pay little off in the early years so there is a high risk of either negative equity or being a mortgage prisoner if not modeled correctly. Serious thought should be given to some of the most vulnerable buyers and the focus should be on housing being a senior department rather than using it as an election bribe."
Speaking today, Chris Gardner, CEO at Atelier, said: “It’s disappointing to see another Government U-turn on housing. Whilst the devil was always going to be in the detail, it was at least promising to see the Chancellor trying to bridge the deposit gap that has locked first-time buyers out of the market. Unless action is taken by the government and mortgage lenders to kickstart the first-time buyer market the rest of the market will remain in a state of inertia.
“Restrictive mortgage loan to value ratios are keeping first-time buyers off the housing ladder and have pushed property transactions down by almost a quarter over the past year. Whilst it may have seemed a simple solution, a 99% mortgage scheme would have helped fill thousands of empty new-build properties and unlock the current market stasis. Now it’s back to the drawing board to get the housing market back on track.”
