Row over government bid to turn renters into first time buyers

Controversy surrounds a government idea - floated over the weekend - to allow renters to secure mortgages with just one per cent deposits.

The Independent online newspaper claims that the government is considering the scheme as a radical variation of the previous Help to Buy scheme, which saw some buyers able to purchase new build houses with only five per cent deposits.

Banks and building societies would have their mortgages - possibly up to 99 per cent of the property value - guaranteed by the government, according to weekend reports. However there remains scant detail about the idea, with no reference as tohow this would help first time buyers pass payment affordability tests, even if they could afford the drastically reduced deposits required.

Mortgage brokers have reacted cautiously, warning that the government could push up house prices if it guarantees 99 per cent mortgages without any attempt to boost supply. 

“It’s a high-stakes gamble and could potentially fuel yet another house price bubble” says Peter Stamford of the The Mortgage Unit; and Charles Breen, founder of Montgomery Financial, adds: “Rishi Sunak is clearly desperate for votes from youngsters struggling to get on the property ladder, as this kind of scheme could be a real vote winner. But short-term gain could result in long-term pain if borrowers slip into negative equity and at this loan to value there is definitely a chance of that.”

Stephen Perkins, managing director at Yellow Brick Mortgages, comments: “To introduce one per cent deposit mortgages, the government will either have to fund or severely guarantee lenders for the additional risk, especially in the current economic climate. Whilst this could help remove one of the largest barriers to home-ownership and the need for family support, borrowers will still need to be able to afford and obtain a 99 per cent mortgage, which based on the huge disparity between house prices and incomes, means such a scheme would in fact only benefit a small minority.”

Labour deputy leader and shadow housing secretary Angela Rayner was quoted in the Independent saying the idea “completely failed to address the supply of affordable homes, or lift a finger to reform our broken planning system which has forced a generation of young people to give up on the dream of home ownership.”

And an unnamed senior Labour figure told the paper: “The truth of this issue is that you can’t have a serious housing policy without a real plan to drive up supply.”

The Liberal Democrats also spoke against the idea, claiming it was ironic that the party responsible for higher mortgage rates - as a result of the Liz Truss premiership - now wanted first time buyers to have 99 per cent mortgages.

Almost immediately after the main story appeared online it was the subject of criticism by a leading activist in the Generation Rent group.

From his personal X/Twitter account, group deputy chief executive Dan Wilson Craw posted his view of the idea: “So risky - extra demand could fuel price increases that lock even more renters out of ownership, or leave borrowers vulnerable to negative equity at the slightest dip in the housing market. Maybe they should get some housebuilding targets in place before playing with fire.”