'New 5% deposit mortgage could lead to more debt', Generation Rent author warns

4 March 2021, 14:37

EJ Ward

By EJ Ward

A housing expert has warned the Chancellor's new 5% deposit mortgage scheme could just lead to people taking on more debt they cannot afford.

In his budget on Wednesday Chancellor Rishi Sunak announced the mortgage guarantee scheme which will be available to current home-owners as well as first-time buyers looking for a property for up to £600,000.

Reacting to the announcement on mortgages LBC's Shelagh Fogarty with Chloe Timperley author of Generation Rent, an investigation of the inequalities of the UK’s housing market.

The initiative will be available from April and is designed to increase the appetite of lenders to offer high loan-to-value mortgages to creditworthy customers across the UK.

The scheme will provide a guarantee to lenders across the UK who offer mortgages to people with a deposit of just 5%.

When Shelagh pointed out concerns from MoneySavingExpert's Martin Lewis that the 5% deposits were encouraging people who were not ready to buy property to do so, Chloe said she shared that concern.

"There's a reason why banks aren't offering 95% mortgages and that's purely because of risk, if banks aren't offering those mortgages commercially that suggest they think the default risk is too high."

Chloe said, "the fact the taxpayer is going to be underwriting that risk so that banks can lend more money" is not "necessarily going to help people."

Warning it was "just going to help people take on more debt."