The Conservative party has decisively abandoned its proposed 99% mortgage scheme, previously earmarked for unveiling in the upcoming Spring Budget. This move, as detailed by Yopa, a leading full-service estate agency, signals a major reprieve for prospective homebuyers, averting the financial burdens it would have imposed in the long term.
Initial announcements had set the stage for a 99% mortgage policy to be featured in the government’s Spring Budget, purportedly to assist more first-time buyers in climbing the property ladder. However, in a swift change of direction revealed last week, the government opted to discard the policy before its formal introduction.
Yopa’s critique reveals the foundational flaws of the 99% mortgage concept, from the increased financial commitments it would have placed on younger buyers to the significant escalation in housing prices it would likely trigger.
Financial Analysis: 99% Mortgages vs. Traditional Mortgages
Yopa’s scrutiny of current mortgage figures showed that under the 99% mortgage proposal, first-time buyers facing an average property price of £237,655 would need just £2,377 as a deposit. This starkly contrasts with the substantial £35,648 deposit required for a conventional 85% mortgage.
Despite the attractive low entry barrier, the 99% mortgage would saddle the average buyer with a staggering loan of £235,278. At the typical mortgage rate for first-time buyers of 4.41%, this would translate into a monthly repayment of £1,296, markedly higher than the £1,113 for an 85% mortgage. This difference represents an annual extra cost of £2,199, culminating in nearly £11,000 over five years.
The Impact on Housing Prices
The potential influx of buyers under the 99% mortgage scheme would have clashed with the persistent housing shortage, likely driving up property prices significantly. This scenario is reminiscent of the surge in prices following the COVID-19 stamp duty holiday, which saw an increase of £55,199 in average house prices over five years.
Such inflation could have led to a precarious market situation, where a downturn would expose new homeowners to the risk of negative equity, endangering the financial investments of many.
Industry Comment
Verona Frankish, CEO of Yopa, voiced her concerns, stating, “From the moment the Conservatives hinted at introducing a 99% mortgage scheme, it was evident that the policy was a shallow attempt to appeal to younger voters, disregarding the severe long-term consequences.”
She highlighted the dangers of ensnaring a generation in unsustainable financial arrangements and the potential for exacerbating the housing affordability crisis, concluding, “Fortunately, this misguided policy will now remain off the table, to the collective relief of our nation.”
