Industry experts caution that a proposed "99% mortgages" scheme for first-time buyers, reportedly under consideration by Prime Minister Rishi Sunak and Chancellor Jeremy Hunt before the spring budget on March 6, could risk fueling a fresh house-price bubble and overheating the UK housing market.

The scheme would require borrowers to contribute only a 1% deposit towards their first home, surpassing the 5% deposit requirement of the expired Help to Buy scheme, which provided assistance when 95% mortgages were scarce until March 2023. Additionally, the recent extension of a mortgage guarantee scheme, incentivizing lenders to offer larger mortgages, further compounds concerns among experts about potential market overheating.

Amid expectations of housing becoming a key electoral issue before the upcoming autumn election, industry experts caution against the potential consequences of increasing buyer demand without addressing underlying market dynamics.

Peter Stamford, founder and lead adviser for Moor Mortgages, expressed concerns that the proposed 99% loan-to-value mortgages could exacerbate market overheating, potentially leading to another housing bubble. He emphasized the need for ministers to carefully consider the implications of such a radical approach to homeownership.

Moreover, brokers warn that the scheme might expose borrowers to unsustainable debts reminiscent of the 2008 financial crisis, particularly for those offered mortgages exceeding the value of their homes.

Richard Jennings, founder and managing director of Richard Jennings Mortgage Services, highlighted the importance of implementing a longer-term, sustainable, and affordable model to protect borrowers and ensure future generations' access to homeownership.

The discussion around supporting first-time buyers comes amid a significant decline in their numbers, attributed to high-interest rates and years of escalating house prices, making homeownership less affordable. Recent data from Nationwide indicates that the average earner with a 20% deposit for their first home faces monthly mortgage payments equivalent to 38% of their take-home pay, surpassing the long-term average of 30%.

While the government neither confirmed nor denied discussions about the 99% mortgage program, a Treasury spokesperson cited the mortgage guarantee scheme's extension until 2025, facilitating over 39,000 households in home purchases and providing additional support for first-time buyers.