Ahead of the Spring Statement on the 6 March, rumours of a prospective 99% mortgage scheme have rippled across No.10.
The scheme, reportedly propped up by Rishi Sunak and Jeremy Hunt, would only require borrowers to put down a 1% deposit on their first home.
The policy is set to go even further than the 5% deposit required for the recently expired Help to Buy Scheme and would fall alongside the extended mortgage guarantee scheme in its ambition to get first-time buyers on the property ladder.
According to David Hannah, Group Chairman of Cornerstone Tax, the UK’s leading property tax advisory, a 99% mortgage scheme would amount to insufficient ‘political tinkering’ from No.10 to prop up a housing market built on unstable foundations.
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Experts from across the property market have highlighted the dangers of forming a 2008-style housing bubble due to an excessive fuelling of demand from first-time buyers.
Brokers have warned that such a scheme could expose borrowers to unmanageable debts, not too dissimilar to those offered mortgages worth more than the price of their home during the 2008 financial crisis. Moreover, neglecting the supply-side of the housing sector runs the further risk of overheating the property market, further driving up prices.
According to David Hannah, Group Chairman of Cornerstone Tax, the housing market requires more than surface level ‘political tinkering’ to repair its broken incentive structure.
Without adequate consideration for the UK’s dwindling housing stock, it’s almost certain that a bubble will emerge as first-time buyers are nudged into taking out loans that they cannot afford. Instead, policymakers should look towards increasing incentives for housebuilding and unfreezing the private rental sector for people who cannot yet afford to buy.
David Hannah, Group Chairman of Cornerstone Tax said, “These reports of a 99% mortgage loan-to-value mortgage coming from No.10 showcases the utmost desperation from politicians looking for an easy-fix to one of the most prescient issues for young voters, affordability. In my view, encouraging first-time buyers to take on increasingly unaffordable debts is not a viable long-term solution to Britain’s housing woes.
“The move amounts to piecemeal political tinkering whereby the root causes of the current crisis remain unaddressed, the nation’s dwindling housing stock, record-high interest rates and a stamp duty regime that refuses to shift towards current market trends must be addressed by policymakers if the government wants to get Britain buying again in 2024.
“It’s essential to note that the government must also prioritise unfreezing the private rental sector, since mortgage rates have skyrocketed and landlords have had to face the highest tax burden since the second world war, a record number have been forced to leave the property market – causing rents to rise that their fastest level since records began in 2006 due to the dwindling supply of rental stock.”