Cheap mortgages could spell huge trouble for the economy

A new mortgage scheme allows first-time buyers to buy a home with a deposit of as little as £5,000.

Yorkshire Building Society Mortgages allow buyers to borrow 99% of the value of their desired property, up to £500,000, via Sky News.

Typically, lenders require buyers to pay a 10% down payment, which is an important reason why many young people find it difficult to buy their first home.

There are some strict restrictions for buyers to get access to the new plan, including credit scores and affordability checks. It is also not allowed for the purchase of apartments or new homes.

The scheme has been praised by some for allowing young people to get on the property ladder, with Ben Merritt, mortgage director at Yorkshire Building Society, saying it would “level the playing field for those who don't have the financial support of their families.”

However, there are concerns that the new plans could cause further financial problems.

“This is a high-risk gamble that could spark another house price bubble,” Peter Stamford of Mortgage University told City Morning News.

Some agents worry that a 99 per cent down payment will further stimulate demand for homes, driving up prices and leading to negative equity, where a home is worth less than the remainder of the mortgage.

Charles Breen, founder of Montgomery Finance, said: “Rishi Sunak is clearly desperate to get the votes of young people struggling to get on the property ladder as this is the kind of scheme that could really win votes.

“But short-term gains could lead to long-term pain if the borrower falls into negative equity, which is certainly a possibility given the value of the loan.”

Stephen Perkins of Yellow Brick Mortgages echoed similar sentiments.

“To introduce one per cent deposit mortgages, the government would either have to fund the additional risk or strictly guarantee lenders, especially in the current economic climate,” Perkins said.

“While this may help remove one of the biggest barriers to home ownership and family support needs, borrowers will still need to be able to afford and secure a mortgage at 99%, which is based on the huge gap between house prices and incomes that means this The plan will actually benefit only a small number of people.”

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