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Tory MPs back plan for 99% mortgage despite housing shortage warnings

Senior Conservative have backed a radical plan being considered by Rishi Sunak’s government to guarantee mortgages requiring only 1 per cent deposits.

Tory MPs largely welcomed the idea of a scheme to boost 99 per cent mortgages, after The Independent first revealed the March Budget proposal aimed at first-time buyers.

Economists and housing experts warned that such a scheme – aimed at helping young people onto the property ladder – would create “massive risk” for taxpayers and would push up prices.

They argued that boosting demand without fixing the shortage of housing was a “high-stakes gamble” that could fuel “yet another house price bubble”.

But Tories from both the left and right wings of the party are excited by the plan. Former cabinet minister Robert Buckland said: “A bold idea like this is very welcome.”

Mr Buckland said the problem of overheating the market could be avoided “by ensuring that mortgages are easily available for new homes built by modern methods of construction”.

The leading Tory moderate said the government should combine “an increase in speed of supply of housing with easier to access mortgages, in order to avoid excessive house price inflation”.

Chancellor Jeremy Hunt’s team considering scheme to boost home ownership (PA Wire)
Chancellor Jeremy Hunt’s team considering scheme to boost home ownership (PA Wire)

Shaun Bailey, one of the red-wall MPs pushing the government to boost housebuilding to win back young voters, said it was a “positive” idea and his initial assessment was “favourable”.

The Tory MP for West Bromwich West said young constituents “struggle to transition from paying high rents to affording a mortgage due to hefty deposits”, adding: “Overcoming this hurdle would be beneficial – it’s crucial to help young people step onto the property ladder.”

Former Tory minister John Redwood: “I’m keen to support any proposal to boost home ownership, as long as its suitable people and you assess affordability and credit status.”

The senior right-winger said the benefits outweighed the risks. “A young person starting off with a decent job, why shouldn’t they borrow [at 99 per cent] – taking a 99 per cent mortgage is perfectly sensible because you will get pay rises,” said Mr Redwood.

Government sources have said a Treasury-backed scheme to help first-time buyers get 99 per cent loan to value (LTV) mortgages is one of the big ideas being discussed for chancellor Jeremy Hunt’s Budget on 6 March.

House prices have pushed ‘generation rent’ away from ownership dream (EPA)
House prices have pushed ‘generation rent’ away from ownership dream (EPA)

Bright Blue – the centre-right think tank which has been pushing the government address the needs of young voters in “generation rent” – also welcomed the idea.

“We need bold demand-side and supply-side measures to improve the affordability of home ownership,” said executive chair Ryan Shorthouse.

“The size of the deposit is the biggest barrier for prospective first-time buyers. It is right that the government looks to guarantee mortgages to the extent that the upfront deposit which is required is significantly smaller.”

“Frankly, there are much bigger causes of house price inflation than government subsidy for first-time buyers,” Mr Shorthouse added.

Housing secretary Michael Gove has said homeownership offer will come in election year (PA Wire)
Housing secretary Michael Gove has said homeownership offer will come in election year (PA Wire)

But mortgage brokers were among those sounding the alarm on the proposed scheme. Peter Stamford at The Mortgage Uni said the “sting in the tail” would be the higher interest rates that come with low deposits.

“There is also a risk it could once again cause the property market to overheat, driving prices up further. It’s a high-stakes gamble and could potentially fuel yet another house price bubble,” the expert warned.

And Riz Malik, director at R3 Mortgages, said with house prices so high, affording monthly payments would remain a barrier for many young buyers.

“However, for a government that looks set to be massacred at the general election, desperate times call for desperate measures,” he said.

Torsten Bell, chief executive of the Resolution Foundation, said the low-deposit proposal would “permanently raise home ownership rates” – but warned that it would also mean the government “taking a massive chunk of house price risk”.

“The last 15 years have taught us recessions are now VERY expensive for the state – causing huge increases in national debt,” the top economist posted on X – making clear the plan would “take even more risk onto the public sector balance sheet”.

Mr Sunak’s party is struggling to win support among younger adults. Only 10 per cent of voters under the age of 50 intend to vote for the Tories, the latest YouGov poll has found.

Housing secretary Michael Gove last month hinted the government were exploring ways to boost home ownership – saying the party would “definitely” have a new offer for prospective buyers before the general election.

“We have been asking the question, how can we ensure that people with decent incomes who are finding it difficult because of the scale of deposit required can get on to the housing ladder?” he told The Times.

“I don’t want to pre-empt anything … but it’s about looking at some of the rigidities in the mortgage market which they haven’t got in other jurisdictions.”