Spring Budget: Jeremy Hunt abandons divisive 99% mortgage scheme

Chancellor Jeremy Hunt has abandoned plans to introduce a 99% mortgage scheme in the Spring Budget amid warnings of inflated house prices and unaffordable mortgages.

Hunt and prime minister Rishi Sunak were reportedly considering the move as a last-ditch bid to convince voters to turn to the Tories in the upcoming general election by helping people overcome pricy deposits to get on the housing ladder.

The proposal would have seen the government become the loan backer but it sparked criticism that it could drive house prices skyrocketing and leave mortgage-paying households facing expensive mortgages or the risk of negative enquiry.

Instead, Hunt’s Spring Budget was light on housing announcements. The chancellor announced £242m funding to deliver 8,000 homes in Barking Riverside and Canary Wharf and a £20m community-led housing scheme but nothing else to affect access to the housing market.

Jonathan Bone, mortgage lead at Better.co.uk, said: “The allure of a 99% mortgage is undeniable – it offers a swift entry onto the property ladder for renters, eliminating the need for years of saving for a hefty deposit. Moving from renting to owning opens up doors for first-time buyers who have the opportunity to build equity in their home, potentially turning a profit as property values increase, unlike waving goodbye to your money when renting.

“Had the government’s proposal materialised, many first-time buyers might have found themselves stuck paying expensive mortgages, struggling to keep up with repayments and unable to remortgage elsewhere. The scheme could have also caused a surge in demand, further inflating house prices, and exacerbating the risk of negative equity for future buyers if the market faltered under the strain.

“Fortunately, abandoning this ill-conceived policy brings a sigh of relief. It’s a reassuring outcome, sparing first-time buyers from the potential pitfalls of such a misguided approach.”

Introducing 99% mortgages could have wiped thousands of pounds of deposits for first-time buyers.

Under the proposed scheme, the deposit on a home at the average UK house price of £285,000 would pay just £2,850 as a deposit. That’s an enticing prospect when compared with a mortgage requiring a 10% deposit of £2,850, for example.

Halifax said in January that the average deposit for first-time buyers was £53,414, around a fifth of the purchase price of a home.

The trade-off for a small deposit, however, is higher mortgage payments.

Ahead of the Spring Budget, Rightmove said the average monthly mortgage payment for a typical first-time buyer property was £1,089 a month for an average five-year fixed 85% loan-to-value mortgage. That was up from £1,068 a year previously.

Matt Smith, Rightmove’s mortgage expert said: “Whilst we felt the 99% mortgage scheme idea would have only been able to help a very limited number of future first-time buyers, it could have played a role as part of a broader set of considered measures.”

House prices soared to record highs almost two years ago but have been slightly declining ever since as interest rates have been raised to combat inflation, driving variable mortgage payments higher.

There have been signs that house prices are now starting to recover – Nationwide reported its first annual house price growth for the first time over a year in February with prices up 1.2% year on year.

In recent years, the government has introduced demand-side measures to help people into home ownership including Help to Buy schemes and stamp duty cuts running until March 2025.

But demand-side solutions to the housing crisis have been trickier. The government has failed to hit its target of building 300,000 homes per year by the mid-2020s and last year built around 235,000 homes.

Housing shortages, particularly in social housing, are one of the factors driving the housing crisis. Last week Shelter and the National Housing Federation said building 90,000 social rent homes a year could give the economy a £50bn boost over the next three decades.

Anna Clarke, The Housing Forum’s director of policy and public affairs, said that building more homes is the only sustainable way to help people into home ownership, rather than a focus on 99% mortgages.

“I think 99% mortgages are likely to be less effective than they would have been a couple of years ago because the size of deposit is not the main barrier facing buyers anymore; it’s the size of the loan repayments they’d face. You could say they’re the answers to yesterday’s problem,” said Clarke.

“In as much as they work at all, they can only do so by pushing prices higher than they otherwise would be. They’re poorly targeted at increasing new supply as they’d presumably be available on all housing, old and new, unlike Help to Buy, which did definitely increase housebuilding. Increasing housebuilding is the only long-term way to increase the number of people who can afford a home of their own.”