Government Contemplates 1% Mortgage Deposit Plan:

In a move to engage younger voters, Chancellor Rishi Sunak and PM Jeremy Hunt are exploring a mortgage guarantee scheme, intending to facilitate entry into the property market. The bold proposal, under consideration for the upcoming spring Budget.

March 6th, would enable first-time buyers to secure a mortgage with a minimal 1% deposit. This equates to just £2,880 for a property at the UK's average price of £288,000. While the short-term allure is evident, experts caution that the housing shortage might lead to increased home prices, and the scheme overlooks the fundamental issue of inadequate housing supply.

The current mortgage guarantee scheme allows first-time buyers to secure a mortgage with a 5% deposit. Hunt is contemplating extending the plan further by reducing guaranteed deposits in his upcoming budget. Critics argue that a 1% deposit may intensify competition among buyers for a limited housing supply, potentially driving up prices and exacerbating long-term housing shortages.

Labour's Deputy Leader Angela Rayner criticised the government for failing to address affordable housing supply and reform the planning system, emphasising that a genuine housing policy requires a comprehensive strategy to boost supply. The potential scheme could open access to 99% Loan to Value (LTV) mortgages with a minimal 1% upfront deposit, backed by the government to mitigate lender risks. However, lower deposits often result in higher mortgage rates, prompting experts to advise buyers to consider a higher deposit for more favourable mortgage terms.

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Written by Veera Josey, 24th January 2024