Chancellor Reportedly Scraps Controversial 99% Mortgage Scheme Amidst Backlash
Coming mere days before plans for 99% mortgages were to be announced at the Spring Budget, The Chancellor Jeremy Hunt has reportedly scrapped the scheme. The proposed initiative aimed to allow first-time buyers to purchase properties with a deposit as low as 1%.
However, this controversial taxpayer-backed scheme faced significant criticism from lenders and brokers alike, who expressed concerns about potential negative equity and defaults among borrowers. Banks also raised worries about the substantial costs involved for borrowers due to the higher levels of interest that would be charged at a high loan-to-value (LTV) ratio.
Mike Regnier, the Santander UK chief executive, said in January that mortgages for buyers with only a 1% deposit could drive up risks for banks because borrowers would have less incentive to keep up with payments.
“The customer has a proper interest in making sure they keep the repayments up [at 95%] because they have an economic interest.
“As soon as you get to 99% and house prices fall by 1%, customers don’t have that economic interest anymore and the rules of the game change quite considerably.”
Although the plans for a 99% mortgage have been abandoned, it remains possible to secure a 95% mortgage. This lower loan-to-value ratio offers more security for both borrowers and lenders, reducing the risk of borrowers entering negative equity within the property.
Brooklyns Financial director, Harps Garcha, comments to the Financial Times Adviser, while the scheme’s scrapping may leave many first-time buyers feeling “disheartened”, the reasons behind this move are “hardly surprising”.
She specified that affordability challenges for banks, particularly in more expensive regions, coupled with the risk of negative equity for new buyers, made the short-term appeal to such a stimulus “difficult to justify”.
If you are looking to purchase your first home or looking for a new deal on your current property, it is important to get advice. Speak to one of our experienced mortgage consultants who can help find the best deal for you. Contact our team or call 01628 564631 to book an initial consultation.
The information contained within was correct at the time of publication but is subject to change.
Your mortgage is secured on your property. Your property may be repossessed if you do not keep up repayments on your mortgage.
Source: Telegraph, Financial Times Adviser
