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How 99% Mortgages Would Work

A square notepad on a table with "Buy or rent?" written on it
Author: Samuel Beckingham
Updated: Mar 06, 2024
3 minutes read

Having a single percent for the deposit on a property would boost home ownership amongst younger people. Renters have been struggling to save up increasingly larger amounts for homes, especially against the backdrop of a cost of living crisis. This is why the possibility of 99% mortgages could help people get onto the property ladder.

The Theory

Rather than 10% of a property’s price to be put up as a deposit, 1% would shave thousands off this initial cost. This means with an average home costing £290,000, only £2,900 would be needed upfront, saving £26,100.

Similar Schemes

The Help to Buy scheme ran from 2013 to 2023, and this was a way of encouraging homeownership for first time buyers through a 5% deposit. The government underwrote these deals with a 20% equity loan on new build properties. Through this scheme, almost 400,000 loans were granted.

Last year, Skipton Building Society offered 100% mortgages for the first time since 2008. The catch was you were only allowed to borrow as much as you were paying in rent.

The more recent Mortgage Guarantee Scheme offers the same 5% deposit and will run until 2025. Currently, more than 24,000 households have been helped through this process.

The Detail of a 1% Deposit

Even though the deposit would be much more attractive (and affordable) for renters, the interest rates would typically be higher. Anyone with more of a deposit will be able to benefit from a more competitive rate, while those with a 1% deposit are deemed as more of a risk to lenders.

The other issue here is that, even if the money was available, it doesn’t guarantee that an affordability test would be passed. House prices are still relatively high, along with interest rates, so the monthly costs would still be expensive.

However, if more younger people were able to receive mortgages at an earlier stage, it would increase the availability of 35-year mortgages. This would help to lower monthly costs, locking in homeowners for the long run.

Lender Concerns

Despite the hope that such mortgages would offer young people, lenders would still be worried. With a lower deposit comes greater risk. Even if the government backs 99% mortgages with an underwritten percentage, lenders would still want support from other areas to support such a scheme.

Despite the benefits, lenders would be more concerned with borrowers not staying in properties should prices plummet. With less capital at stake, there’s a chance people could simply move on instead. In their eyes, there’s less incentive to stay in their chosen property.

Market Concerns

There is a chance that the housing market could see prices surge on account of these mortgages. With homebuyers flocking to the market, stock won’t be able to keep up. Demand would then outstrip supply, making the next wave of potential homebuyers suffer through extra difficulty in affording a place of their own.

However, in response to this, the Home Builders Federation praises any scheme that boosts homeownership. They saw home construction increase during the operation of the Help to Buy scheme, so any incentive would likely do the same. Britain has suffered from a lack of housing for decades, and any way to motivate developers to ramp up their efforts can only do good.