1 % mortgages

[Waterfallsandrainbows]

What do you think of this initiative?

I think it’s a good idea as saving a 5% deposit keeps many trapped in the rent cycle. Those that want to get out will be able to now.

I’ve paid off numerous mortgages in my life and I just see a mortgage as stopping me from having to rent with a bit of added security. I have never really been emotionally attached to any of my homes.

The only problems with it are:

• whether a seller will accept a 1% deposit. On a £300k property that is only £3k and is small enough that some would walk away from that amount; and
• affordability in the sense that it can push house prices yet higher with more people able to buy and the buyer is likely to have to pay more interest as high loan to value

I agree otherwise. I got on to the ladder expecting to do so with a 3% deposit as it happened I just got to 5% before committing to a mortgage so was lucky as that reduced the interest rate significantly.

Do you mean 1% deposit?

It's a bad idea. This is how the problems with negative equity start. The deposit is supposed to be your protection against the value decreasing and the house being worth less than you owe the bank for it. Without this- if you go bankrupt- the bank loses out and the whole banking crisis happens again.

Also- any big changes to make house buying more accessible usually end up having the opposite effect. Help to buy/ removing stamp duty both led to a soaring increase in house prices which has never come down. Prices are high because demand already outstrips supply. Increasing demand (through more people technically able to buy) without any real change in supply will ALWAYS mean an increase in house prices until the demand falls away again to equal the supply. It's basic economics.

@Barleysugar86 how would you enable those that can’t save a 5% deposit and stuck in high rents get on the property ladder?

The Government had to bail out the banks last time how is this any different?

Anyone read Michael Lewis's The Big Short? One of the financial analysts in it coauthored a paper, before the global financial crisis, called "A House Without Equity Is Just A Rental With Debt". The housing bubble of pre-2008, and subsequent collapse, was fuelled in part by zero-deposit lending which meant that when people got behind on their payments, they had no incentive to do anything other than hand the keys back to the bank and abandon the place.

Do you mean a 1% deposit?

You are thinking of it on an individual level- and on an individual level you just have to do your best to save it up/ move in with family/ wait for an inheritance or relocate to an area of the country with cheap housing. Sorry I know it sucks on an individual level but 1% mortgages aren't the answer.

On the national level they are trying to do the right things to help- making being a landlord less attractive to hopefully release extra housing stock, encouraging extra home building. There could probably be some value in making the holding of additional unused building stock harder to do, especially from abroad, or encouraging schemes to turn more unused commercial space into housing. But they have to be careful because the country needs a rental sector and if they go too far and fast with reforms it ends up making the rents crazy and hurting those renting too. If they suddenly made 1% mortgages available to everyone you wouldn't get a house- you would end up in a bidding war with fifty others for a property and the price would go up and up until only one was left. You can't magic up extra supply this way. Extra supply is the only way the cost will come down. 5% wouldn't be hard to do if housing was not so very expensive.

I agree you need rentals because some individuals just don’t want to buy or want that responsibility.

Maybe a percentage of all tax from rental properties could be allocated for long term renters to get a tax funded deposit?

For example, if you’ve been in a rental for 5 years, never missed rent and can show your income is as secure as it can be you can apply for x amount deposit. If it’s not enough for your area then you have to move. It must be perpetually depressing for some to never feel buying is in your grasp.

There are over 2 million BTL in the UK maybe have a £10 a year BTL tax to fund deposits?

It's a silly idea. Why repeat the 100% mortgage disaster? The only difference is that this time it'll be taxpayers on the hook from the get go as the banks have learned their lesson.
If they actually cared about people being able to afford homes they would slowly bring down the prices of these homes so that it wouldn't be so hard for first time buyers. They could make it less desirable to run Air bnb, have 2nd homes etc. They could bring in laws that taxes empty properties and if the taxes are not paid these properties could be repossessed and auctioned. They could tax the land that is held by developers and not being built on. So many options that would actually help.

Agree with all the posters who say the idea doesn't make sense. That only works if you presume there is an unlimited/sufficient for demand amount of house at price X. There aren't. If there are Y-thousand less houses than families, you will always have those Y-thousand families in need of a house. Lowering the deposit doesn't build more houses. It drives up prices in first instance and drives up vulnerability to any correction if and when that correction happens.

Your other idea about renting automatically amounting to deposit saving is intriguing.

i like the idea. We bought our first flat with a 100% mortgage didn’t stretch ourselves, mid- twenties both working, based it on one salary, repayment over 15 years with a capped interest rate. Our mortgage was less than our rent and allowed us to get on the ladder several years earlier than we would have been able to. Used sensibly v good option. Maybe have stricter affordability criteria so people can afford repayments easily, they may need to buy a cheaper property but if they are younger that’s no bad thing.

I think even 5% is low tbh. The change I think should be brought in is affordability- if you have paid X amount of rent for a minimum of two years with no issues that should be your minimum monthly affordability for a mortgage repayment.

We were offered 105% when we bought just before the crash. Take extra for furniture etc they said. We didn't but it was offered and sounded like a normal thing to do. I feel like a 1% deposit might be reasonable for first time buyers to help them start.

To be honest, I don't think it's just a deposit anymore, that's the issue is the affordability criteria because the affordability criteria does not match up with the house prices.

this proposed plan will just make it worse. We need more houses and this is just increasing the demand and not actually helping the supply.

I think that a lower deposit might have worked when interest rates were low. But now I find that new mortgages are no longer cheaper than rent. At least around me. So if you can't scrape a 5% deposit what will you do if you have to fix the roof or replace a boiler?

The people I knew who had 100% mortgages in the 2000s were people straight from uni who just got their first job. They didn't try saving they just bought a cheap house on mortgage. For some it worked out as the price rises funded the deposit for the next place. But some got badly burned with negative equity and couldn't move for years struggling in places that were too small for their family. I think hoping for price rises to save you when you have a 100% mortgage is very very risky and should not be encouraged.

I think the deposit % is a red herring. The bigger issue is affordability and the multiples at which lenders will lend. For many people paying rent, they have a track record of paying sums that are often higher than a mortgage repayment would be, but the lender says no, despite there being a deposit, as on paper it's deemed unaffordable.

DD wants to get on the property ladder. She earns £30k. There is precious little below £300k where we live. So there needs to be some kind of mortgage product that would allow her to borrow say £250k, on a £30k salary.

At times in my life (early noughties, trainee solicitor) I've been offered 110% mortgages. Even when we got our second home in the mid noughties, and we were borrowing about £160k, the building society were like "Are you sure? You could borrow up to £400k if you like."

No, you're all right 😱

I think what is needed is ggod sized homes that cost <£200k across more of the country.

Won’t happen, they can’t buy the land/materials and make a profit. And unless you’re willing to work for free, you can’t really blame them!

If people can’t afford a 5% deposit will they be able to afford everything that you don’t realise needs to be paid as a tenant: roof repairs, water leak damage, electrical issue… plus the 1001 unexpected things that you have to pay for as an owner?

I would be in favour if the amount loaned was conservatively capped according to income and a reference of 2+ years timely rent paying was provided.

I’m a bit conflicted by it. I really feel for anyone who is a first time buyer and can’t save for the deposit, we did help to buy about 7 years ago and only needed a 5% deposit and that was a struggle even with house prices much lower than they are now. I do think there will be a greater risk of negative equity and I’m not sure that as a first time buyer I would have considered that had we been able to buy with a 1% deposit. I think more needs to be done to make owning your own home more achievable for the majority, but I’m not sure this is the way. Having said that though my brother got a 100 percent mortgage many many years ago, paid it all off and has never had any issues.

I bought my first house via a staircasing scheme. No deposit, each month I made a payment made up of two parts - one part rent and one part equity. So each year I owned a larger percentage of that home. It was a fabulous way to get on the property ladder and the equity I accrued allowed me to buy my current home.

I've no idea why there aren't more of these schemes, or why the government doesn't back them, it was an excellent way to get on the property ladder and the take up in our local area was huge.

There's quite an interesting graph in the Mail showing the difference between renting and mortgage. And with a 10% deposit it seems that you barely break even with high mortgages. This is really scary as I don't think they even considering the costs of upkeep and fees of buying/remortgaging.
Imagine you'd be deep in the red with just a 1% deposit.

https://www.thisismoney.co.uk/money/mortgageshome/article-13000889/Is-good-time-buy-home-investigate-buying-cheaper-renting.html