The Conservative Party is widely reported as having scrapped its 99% mortgage scheme, which it was considering introducing in tomorrow’s Spring Budget.
Releasing such a mortgage scheme would enable those with high income and a small deposit to buy. However it could also do more to fuel house price gains, while it’s seen as a cynical way of trying to buy young voters at the upcoming General Election.
Another downside is the mortgage could put more people at risk of falling into negative equity if the country fell into economic turmoil, which can cause house prices to dip.
Verona Frankish, chief executive of Yopa, said: “From the first moment it was suggested that the Conservatives would introduce a 99% mortgage scheme ahead of this year’s general election, it was widely understood to be a misguided policy that was simply designed to attract younger voters without considering the long-term complications.
“Had it come to fruition, the policy would’ve essentially trapped an entire generation of first-time buyers into expensive repayment plans that would have no doubt spurred an increase in the number of those forced to default.
“It’s also likely that the inevitable surge in demand caused by such an announcement would have only caused house prices to climb even higher, putting future buyers at a further disadvantage and increasing the risk of negative equity for many more should the market have buckled under the pressure.
“Our nation can now breathe a collective sigh of relief, safe in the knowledge that this ill-advised policy is unlikely to see the light of day.”
According to Yopa analysis, at Britain’s current average first-time buyer house price of £237,655, buyers who took advantage of a 99% mortgage would have required a mere £2,377 up front to cover the 1% deposit.
However, this incredibly low access threshold would have required the average first-time buyer to shoulder a mortgage loan of £235,278. At the average first-time buyer mortgage rate of 4.41%, the typical monthly repayment on a 99% mortgage would have been £1,296.
