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What impact will government’s 1% deposit mortgage scheme have on the housing market?

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Sat 24 Feb 2024

What impact will government’s 1% deposit mortgage scheme have on the housing market?

The government has reportedly stepped up its plans to introduce a 1% deposit, or 99% loan-to-value (LTV) mortgages with a view to helping more first-time buyers purchase onto their homes.

The aim of this initiative, which could be announced in the spring Budget on 6 March, is to ease the financial barrier to homeownership, with the UK government guaranteeing the mortgages. But what impact will this have on the housing market?

This would be similar to the existing Mortgage Guarantee Scheme, which aims to help those buying homes with 5% deposits.

If it is confirmed, the policy would no doubt be welcomed by some first-time buyers.

However, critics say that it could also push up house prices, and that struggling first-time buyers may not be able to afford the monthly repayments required on such a large mortgage, especially as rates remain relatively high.

Brokers offer their views:

Simon Gammon, managing partner at Knight Frank Finance: “The popularity of the scheme will depend on how the lenders opt to price these mortgages. If they are competitive, take up will be substantial, but getting rates competitive will require the government to underwrite quite a sizable proportion of the loans.

“Fuelling demand to this degree without a massive surge in housing supply will undoubtedly fuel house price inflation. There is also the very real prospect that any falls in house prices will leave many buyers in negative equity, with the taxpayer on the hook in the unfortunate circumstance that borrowers aren’t able to meet their payments.

“It’s quite a high-risk strategy, and it illustrates just how few options the government has if it wants to help first time buyers in meaningful numbers in the short term.”


David Hollingworth, associate director at L&C Mortgages: “This would likely open up an alternative option for first time buyers struggling to build a deposit.

“Requiring a smaller deposit could help accelerate the ability to buy, for those that can fund the remainder from mortgage borrowing.”


Daniel Austin, CEO and co-founder at ASK Partners: “This is positive news for the housing market as it will serve to reinvigorate the first time buyer market, consequently driving more turn over of properties higher up the chain. With rental prices so high, it can be hard to save for a meaningful deposit but those managing the rents would find it easier to make monthly mortgage payments.

“This will be very welcome news for a generation of renters with no access to bank of mum and dad, who might now have a chance of home ownership, and for developers who we saw benefit from the previous Help to Buy scheme. For the property sector overall, the fact that both parties are prioritising high profile housing policies in the run up to the election is encouraging, as is any financial stimulus to the sector as long as it doesn’t create too much froth in the market.”