In the realm of questionable government policies, the proposal to introduce 99% mortgages stands out as one of the most misguided. The plan’s premise is simple, yet fraught with potential disaster: allow people to secure a mortgage by paying a minuscule 1% deposit. The goal? To help the younger generation climb onto the property ladder, a commendable aspiration but one that could have catastrophic repercussions.
David Pett, a solicitor with national conveyancing provider MJP Conveyancing, casts doubt on the wisdom of such a proposal. “While it is true that many young people struggle to save enough for a deposit due to the cost of living crisis, 99% mortgages would be an absolute disaster for the economy,” he warns.
Indeed, the initial joy of those able to take advantage of this scheme might quickly sour. Should a future government confront the root causes of expensive housing and take steps to rectify them, those with 99% mortgages could find themselves plunged into negative equity.
The banks, undoubtedly nervous about the risk of default, would likely require the government to underwrite a significant portion of these loans. This would result in taxpayers indirectly footing the bill for other people’s mortgages, including those denied the opportunity to own their own home.
Without government involvement, we face the grim prospect of a surge in mortgage defaults and repossessions. Swathes of young people could find themselves homeless and their prospects destroyed.
“Far from making it easier for young people to own a home, it will actually exacerbate the housing crisis,” David Pett warns. The fundamental principles of supply and demand illustrate why. If you increase demand without increasing supply, prices inevitably rise. This could make the housing market even more unaffordable, inflating both buying and renting costs.
Rather than implementing such ill-conceived schemes, the government should tackle the root cause of the housing crisis, that is the shortage of affordable homes. The should be the focus of future policy.