Could 99% mortgages be on the cards?

The Government is reportedly considering introducing 99% mortgages to help boost the number of first-time buyers getting onto the property ladder.

Lisa Parker
February 15, 2024

What is a 99% mortgage?

A 99% mortgage, as the name suggests, would allow buyers to borrow up to 99% of the property value, so they’d only need to put down a deposit of 1%.

That means, for example, that if you were buying a home valued at £250,000 and provided you’re able to meet the lender’s affordability criteria, you’d potentially be able to borrow £247,500 and put down a deposit of just £2,500.

The Government may offer lenders guarantees, in the same way they do with the existing Mortgage Guarantee scheme, to increase their appetite for high loan-to-value lending. A firm plan has yet to be announced and may not be unveiled until the Spring Budget in March, but here’s our rundown of some of the pros and cons of this type of mortgage, should they be introduced.

Benefits of 99% mortgages

The biggest advantage of a 99% mortgage is that homebuyers won’t have to save for years to build up a deposit if they want to buy a property. Most lenders currently require buyers to put down a minimum of 5% of the property value as a deposit, which can be a particular challenge for those having to pay steep rental costs at the same time. According to Generation Rent, the time taken to save up for a deposit in England has hit 10 years, so a 99% mortgage might make it much quicker for those who are struggling to save a deposit to get onto the property ladder.

Disadvantages of 99% mortgages

The main drawback of a 99% mortgage is that if property prices fall in years to come, you could find yourself in a position of negative equity, which is where you owe more than your property is worth. If you find yourself in this situation, you could find it very difficult to remortgage, as you won’t own any equity in your home.

This means when your current mortgage deal ends, you could end up stuck paying your lender’s costly standard variable rate with no way to remortgage to a cheaper deal.

Although a 99% mortgage might make it easier to build a deposit, it won’t make owning a property any more affordable, and lenders will still need to check that your income and outgoings will allow you to keep up with your monthly payments. It’s worth noting too that mortgage rates for those with only a small deposit to put down tend to be higher than for those with bigger deposits, so your monthly costs will be more expensive.

Alternatives to the 99% mortgage

There are already a limited number of mortgage options for first-time buyers that allow them to borrow up to 100% of the property value, provided family members are prepared to act as guarantors. Skipton Building Society’s Track Record deal, however, which is available up to 100% of the property value and doesn’t require family support, is designed for renters who can prove they have a strong track record of keeping up with their monthly rent and who meet Skipton’s affordability criteria.

If you’re not sure which options might be available to you, seek professional advice from a broker who will be able to help you find the best deal based on your individual circumstances. You can read more in our guide ‘How much deposit do I need to buy a house’

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