The countdown is on to this year’s Budget on March 6th, and as is customary in the months and weeks preceding the big day, we start to hear what the Government ‘might’ be planning – just to test the water.
One such suggestion has been the 99% LTV mortgage. I can already picture Prime Minister, Rishi Sunak now – standing outside a new housing development, handing out ’99’ ice creams from a van to every new homeowner. Though he might need more than a few ice-creams to win over some in the mortgage market.
Perhaps it is that the naysayers shout the loudest but I can never quite fathom the lukewarm reception that such guarantee initiatives are given. I know that as Brits, we are known at times for our negativity, but even so.
London’s Evening Standard columnist and former Government advisor, Ben Ramanauskas, went as far as calling it ‘one of the very worst policies of any Government ever’.
He argued while homeowners might find themselves ‘happy at first’, it would inevitably lead to negative equity if/when the Government decided to build more homes – even going as far as saying this would leave buyers stuck in their homes, unable to start a family, ultimately leading to a declining birth rate. That’s quite the leap of faith.
It’s amazing how those extra few percentage points of LTV can fire up emotions. Let’s not forget, 95% LTV mortgages are already alive and well in the mortgage market, and the last time I checked, the housing market hadn’t spiralled into chaos. We even have 100% LTV mortgages, albeit often with a guarantor element attached.
Perhaps understandably, there are always those who hark back to the days of Northern Rock’s infamous ‘Together’ mortgage and the damage it caused. But we are in a different market today. We have much stronger affordability tests in place for one, and a 99% LTV product is very different from a 125% mortgage.
While negative equity should be a consideration, even if we do see house price falls of a couple of per cent, that is not necessarily the end of the world for buyers on high LTVs, especially if they have no plans to move. And let’s face it, the alternative – renting – is surely not any better.
While it is impossible to say with 100% certainty, it looks much more likely now that large house price falls are not on the horizon. Instead, I expect we will continue to see slow, small but steady increases in house prices over the next few years. The anticipated rise in mortgage transactions this year should also contribute to this, which should add to the appeal for lenders of a guarantee scheme.
As with the Mortgage Guarantee Scheme, the major safety net for lenders comes in the form of it being a Government guarantee. It is to be hoped this is more than enough to tempt lenders to successfully offer 99% LTV mortgages.
The point remains that, if we don’t think of a wider solution soon, we are at risk of a situation where only those who can call upon the Bank of Mum and Dad can get on the housing ladder, which is extremely unfair.
The cost of living and the cost of renting are making it incredibly hard for first-time buyers without some help to save, even for a 5% deposit. Anything that helps them get on the housing ladder is surely a good thing and even better if it generates activity in the new-build sector, which will benefit home movers all the way up the chain.
While we will hear some argue the Government’s efforts would be better focused on building more homes – house builders are only going to start building on mass if they have some optimism regarding selling their end product – which a 99% LTV scheme would inevitably create.
While Help to Buy is a different matter that brought about its own set of problems, it did create demand for homes and, in turn, incentivised builders to build.
I, for one, think a 99% LTV mortgage would benefit the market and given there wasn’t much mention of mortgages or housing in the Autumn Statement, I would hope the market will have something more positive to focus on come March 6th.
Simon Jackson is managing director at SDL Surveying
First published with Financial Reporter