Chancellor finalising ‘high-risk’ 1% mortgage scheme - reports

Rumours of the launch of a 1% mortgage deposit scheme have re-emerged with just weeks to go until the Spring Budget 

Chancellor Jeremy Hunt is reported to be drawing up plans for a 99% mortgage scheme to be included in the red book  as the Conservatives seek to reassure voters that the party is on the side of homebuyers ahead of the General Election.

Buyers would need to put down a 1% deposit on their first home, with the Government acting as a loan backer, the Financial Times reports.

But property commentators remain cautious.

Simon Gammon, managing partner at Knight Frank Finance, said: "The popularity of the scheme will depend on how the lenders opt to price these mortgages. If they are competitive, take up will be substantial, but getting rates competitive will require the government to underwrite quite a sizable proportion of the loans.

"Fuelling demand to this degree without a massive surge in housing supply will undoubtedly fuel house price inflation. There is also the very real prospect that any falls in house prices will leave many buyers in negative equity, with the taxpayer on the hook in the unfortunate circumstance that borrowers aren't able to meet their payments.

"It's quite a high-risk strategy, and it illustrates just how few options the government has if it wants to help first time buyers in meaningful numbers in the short term."