In an incredibly crowded field, the proposal to introduce 99% mortgages has to be one of the very worst policies of any government ever. The plan is to allow people to be granted a mortgage by paying a deposit of 1%. The logic (and I use that word loosely) behind the proposal is that this will make it easier for young people to own a home and get on the housing ladder.
While it is true that many young people do struggle to save enough money for a deposit due to the cost of living crisis, 99% mortgages would be an absolute disaster for the economy.
The young people who find themselves able to take advantage of the new scheme might find themselves happy at first. However, there is a real risk that they would fall into negative equity if a future government decided to do the responsible thing of actually tackling the root causes of expensive housing.
This would be disastrous for young people who would essentially be stuck in their home and unable to move into a larger property and start a family. This would have wider implications for society and the economy as the UK’s birth rate would continue to decline which would impact the age dependency ratio, meaning that working age people would have to pay even more in taxes to fund public services.
If there is no government involvement we will simply see an increase in mortgage defaults and repossessions with swathes of young people becoming homeless and having their prospects destroyed.
Banks will no doubt feel deeply uneasy about granting 99% mortgages due to the risk of default. This will likely mean that the government will have to underwrite a substantial proportion of the loan. This will be a deeply unfair situation where essentially taxpayers will be paying the mortgages of other people. This would include taxpayers who themselves have been denied the chance of owning their own home and so would be particularly galling to make them pay the mortgages of others.
Alternatively, if there is no government involvement we will simply see an increase in mortgage defaults and repossessions with swathes of young people becoming homeless and having their prospects destroyed.
Finally, far from making it easier for young people to own a home, it will actually exacerbate the housing crisis. The scheme might benefit a handful of young people but that will be at the expense of everyone else. The very basics of economics, namely supply and demand, should be enough to show us why.
If you essentially give some people more money to buy something you increase demand. If, at the same time, you do nothing to increase the supply of that product, then the price will go up. This is what will happen to the housing market; it will become even more expensive to buy or rent a home.
Instead of introducing the ill thought through and economically illiterate schemes, the government needs to tackle the root cause of the housing crisis. The most effective way this can be done is by liberalising the planning system, making it easier to build millions of new homes in and around major cities such as London. We need to be building more residential towers in zones one and two, especially near tube and railway stations while also building on some less attractive parts of the green belt surrounding London.
It is encouraging that the government wants to make it easier for young people to own a home. It’s also refreshing that they are prepared to put forward radical plans to make that happen. Unfortunately, the government is going about it the wrong way.
Instead, it should be bold by liberalising the planning system and taking on the NIMBYs in its own party (including many of its own MPs). Building millions of new homes in and around London will not only make it easier for young people to buy their own home, it will make housing more affordable for everyone while also tackling many of the social and economic crises currently plaguing the whole of the UK.
Ben Ramanauskas is a research fellow at Oxford University and a former government adviser
