Jeremy Hunt draws up plans for 99% mortgage scheme
A Treasury source said that the mortgages could form part of a larger package to support homeownership
Treasury officials have drawn up plans to allow new homeowners to take out 99 per cent mortgages as part of proposals to make it easier for young buyers to get on the housing ladder.
The scheme would only require home buyers to put down a 1 per cent deposit on their first home, with the government guaranteeing the additional risk to lenders of mortgage default.
The plans are part of a wider package of measures being considered by the government to help first-time buyers before the next election. A Treasury source confirmed that Jeremy Hunt had asked officials to cost the scheme before next month’s budget but cautioned that an announcement might not be made until the autumn.
At present the government’s mortgage guarantee scheme can help buyers who have a minimum 5 per cent deposit. The Treasury source said that reducing this to 1 per cent would only help a “small number of people” and might have to be combined with other initiatives to make a significant difference to new buyers.
They said Hunt wanted to prioritise tax cuts at the budget and that 99 per cent mortgages could form part of a larger package to support homeownership to be announced in the autumn.
Meanwhile, in a blow to buyers and to homeowners looking to remortgage, HSBC said that it was increasing the rates on several of its fixed mortgages to above 4 per cent, following similar moves from lenders such as Santander and TSB. HSBC was the last big lender to offer deals below 4 per cent for those with a 40 per cent deposit or equity.
The move follows growing market expectations that the Bank of England base rate will fall more slowly than previously predicted to ensure that inflation hits the government’s 2 per cent target. Economists had expected rates to start falling in the spring, but this could now be delayed until later in the year.
About 1.5 million homeowners are coming to the end of their fixed rates this year, according to the Financial Conduct Authority, and they could now be forced to accept costlier deals to remortgage.
Senior Tory strategists believe that the party needs to go into the election with a “significant offer” for younger voters, but there are disagreements over precisely what can be afforded and when to announce it.
Michael Gove, the housing secretary, is pushing the Treasury to consider government support for much longer fixed-term mortgages to reduce the amount first-time buyers must find for a deposit. Such schemes are common in the United States, where mortgage rates are often fixed for 30 years and government protection against default reduces requirements for large deposits.
Other options include a version of the Help to Buy scheme, which was launched in 2013 but shut to new entrants last year. It offered new buyers a government equity loan of up to 40 per cent of the purchase price, interest-free for five years. The homes had to be newly built, but only a 5 per cent deposit was needed. In the past decade, the scheme issued more than 375,654 loans worth a total of £23.6 billion.
Lucian Cook, head of residential research at the estate agency Savills, told the Financial Times, which first reported the 99 per cent mortgage plans, that any scheme that boosted buyer numbers would need to be matched with measures to increase the supply of housing. “You might be addressing the deposit affordability issue, but you’re still left with the mortgage affordability issue,” he said.
Neal Hudson, a housing analyst, said: “There would be a greater risk of negative equity with this, you’d also be paying a premium mortgage rate, and it doesn’t necessarily address the problem of high prices.”
Source: https://archive.ph/M5lJ6
