Stability threatened by 1pc mortgages, warn bankers

JEREMY HUNT’S 99pc mortgage plan risks undermining financial stability and could prompt the Bank of England to make lenders increase their capital buffers to limit risks.

Senior banking sources said mortgages allowing people to put down just a 1pc deposit, being considered by the Chancellor ahead of the Budget on Mar 6, were likely to prompt “concerns” from regulators who are in the process of revamping capital buffer rules on residential mortgages. It suggests that the scheme could allow people with just £1,000 in savings to buy a home.

Whitehall sources said that making home buying more affordable would form a key plank of the Budget, though they described the 99pc mortgage as “one tiny idea from officials”.

Rishi Sunak announced a mortgage guarantee scheme when he was Chancellor to help people with just a 5pc deposit in the March 2021 Budget.

Around 40,000 loans worth £7.4bn have been extended to families under the so-called mortgage guarantee scheme, which is partially underwritten by the Government. Treasury data show the average value of a property purchased or remortgaged through the scheme was £199,245 to the end of 2023, compared with an average UK house price of £287,546. The data also show almost a quarter of all mortgage completions through the scheme to date are on properties worth up to £125,000. Most homes bought under the scheme have been outside London.

Capital rules introduced next year require higher capital buffers for loans in excess of 90pc LTV.

Senior banking sources said small deposits could lead to more properties worth less than their mortgage. “There is a risk that in a property downturn, [we] get into negative equity,” said one source. “A guarantee would mean one set of taxpayers subsidising another.”

The Bank declined to comment.