Real Estate

Government considers introducing 1% mortgage

The government is considering introducing a 1% deposit mortgage scheme as part of Chancellor Jeremy Hunt’s upcoming March Budget, The Independent reports.

It’s typical for lenders to require a 10% deposit, while some mortgages with 5% deposits are also available.

It’s thought introducing such a product would help the Conservatives attract younger voters ahead of the next general election, which is likely to take place this year.

Mark Harris, chief executive of mortgage broker SPF Private Clients, said: “99% mortgages could be a good idea in the appropriate circumstances.

“With added stamp duty costs, a 99 per cent mortgage can look identical to a 95% mortgage for previous generations. Add in the fact that saving for a deposit while renting is practically impossible, this could be a solution.

“There are negatives to consider of course, such as finding yourself in negative equity if house prices were to fall. This would only become relevant if you needed to move but assuming gradual house price inflation and a repayment mortgage where you chip away at the balance each month, equity will be gradually created over time, reducing the loan-to-value.

“There are 100% mortgages available today – for example, Skipton Track Record, which uses the evidence of long-term rent payments as part of its affordability basis and assessment. Also, Barclays Springboard, albeit using equity in a guarantor’s house, so net loan-to-value is lower.

“Unlike 100% mortgages in the past, lenders now have more stringent assessments to perform to assess affordability and stressing. There is less risk of borrowers over-stretching themselves.

“Naysayers will no doubt focus on the fact this is a policy to increase demand for housing not supply so inevitably the effect on house prices will be upwards.”

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