Sadly yes, there are several issues to consider here, or potential dangers and downsides that the experts are concerned about.
First off, it's important to note that just because you now may be able to afford the cost of a mortgage, it doesn't mean you'll necessarily be accepted for one. It is not yet suggested that banks will be helped to adjust their usual affordability checks when running this scheme, meaning that your acceptability will still be based largely on your salary. As things currently stand, mortgage lenders usually offer loans of up to 4.5 times the buyer’s salary, meaning you have to be earning a certain amount before you can actually be granted a mortgage. This often means that single people miss out (couples can combine their incomes to reach the threshold), as Hemming points out: "Sadly, for many single people, buying a house just isn’t realistic, even with reduced deposits. Couples may have more luck, which while potentially unfair, is the reality for many."
You also may struggle depending on where you live; big city-dwellers where house prices are much higher require a significantly larger salary for mortgage acceptance. In short, little looks set to change in terms of whether you'll actually get accepted for a mortgage. David Miles, CBE, Professor of Financial Economics at Imperial College points out that for single people and big city dwellers on 'average' salaries, 95% mortgages will help "only to a limited extent." He also points out that even if you can afford a deposit, "lenders still need to assess whether people can pay the mortgage if interest rates go up by around 3%."
The experts I spoke to can see some other potential issues with 95% mortgages, too. The overarching concern is that it may increase the cost of property in the long term. "It will almost certainly increase demand for a lot of typical first-time buyer homes, so we could well see competition, and therefore prices increase. This could mean that we fix one problem, but inadvertently create another," says Hemming.
Those hoping to make the most out of the scheme also need to think carefully before getting on the property ladder with such a low deposit committed. "As you’re not putting a great deal into the purchase, you need to be conscious of future property prices," advises Hemming. "Should prices drop, your equity could be eaten up quickly, which is a problem should you choose to sell." You may even end up owing money on your house, rather than gaining equity if prices were to crash. Equity is the value of the amount of your house you own, which is determined by your deposit and how much you have repaid to your lender through mortgage payments. For example, if your property is worth £150,000 and you put down a deposit of £30,000, you have 20% equity. When you have repaid your mortgage entirely, or if you pay for a house outright without taking a mortgage, you have 100% equity.
This by no means suggests that the scheme will not be helpful to many or is not worth considering, but these are all factors to take into account especially during these uncertain times we are living in. "This initiative is designed to be a positive form of help, but it may not suit everyone," summarises Jackson. "For example, it may be sensible for some people to wait to buy with a bigger deposit or delay purchase until such time as personal and work circumstances are more settled rather than buy now. My recommendation is always to seek advice from financial and legal professionals as well from trusted family and friends who know your situation well."