Jeremy Hunt’s plans to throw a lifeline to first-time buyers by extending a scheme to 95 per cent mortgages are “doomed to fail”, a property association has warned.
According to reports the Chancellor is expected to renew the Government’s mortgage guarantee scheme in next month’s Autumn Statement to ease the housing market slowdown.
The scheme enables prospective homeowners to buy a property worth up to £600,000 with only a 5 per cent deposit.
It was introduced in 2021 but is currently due to close in December.
The Chancellor is also said to be examining other ways to help first-time buyers, including improved tax breaks for those trying to save for a deposit.
But the National Association of Property Buyers say the plan fails to address the release issue within the market – a lack of supply.
Spokesman Jonathan Rolande said: “Any scheme that increases the demand or buying power of purchasers without increasing the supply is doomed to fail in the long term. The housing crisis can be best described as a game of musical chairs. With a reduction in the number of new homes being built a chair has been taken away. And now Jeremy Hunt is trying to get more people to play.
Mr Rolande also warned, ultimately the plan could see house prices RISE.
He continued: “An Isa that encourages saving without paying tax on the interest is a good thing and adding a Government top up may well encourage even more people to open an account.
“Saved money is anti-inflationary too so that’s another bonus. But whatever is added as a bonus will inevitably fuel prices in the longer term.
“That’s because it is normal for buyers to pay as much as they have for a property – very few do not buy for a sum that totals their deposit and the biggest mortgage they can get. So if you add more money to that pot, people will end up paying more.
“The mortgage guarantee scheme has a similar effect but it takes longer to show in the figures. This scheme in effect doubles down on the Government’s hope that prices won’t fall and if they do, repossessions won’t become common. If they do, the treasury – the taxpayer – as a silent partner in thousands of homes will lose too.”
Describing the idea as a “sticking plaster policy” he added: “The Government realises that they must do all they can to prop up an ailing property market, it is too integral to our economy and way of life to fail. But ideas that do not include hugely ambitious plans to build are no more than a sticking plaster.
“And in the end, may very well make things even worse for our young people who simply want the chance to own their own home one day.”
The mortgage guarantee scheme was launched in response to lenders withdrawing 95 per cent mortgages, which left many homebuyers having to provide huge up-front deposits.
Under the terms of the scheme, the Government guarantees to underwrite the part of a mortgage between 80 percent and 95 percent of the property value, allowing lenders to offer loans to those with just a 5 percent deposit.
In the first two years of the scheme, more than 37,000 mortgages have been underwritten. It covers properties worth up to £600,000 and is open to all buyers.
But 86 percent of successful applications have come from first-time buyers.
Treasury officials are also looking at options to encourage more potential homeowners to save for a deposit.