In a guidance update, the Government said it “recognises the difficulties that many aspiring homeowners face in getting on the housing ladder – in particular, the challenge of raising a sufficient deposit for a home”.
It continued on to say that the “consistent availability” of 95% loan-to-value (LTV) loans would “support prospective homebuyers with a small deposit”.
The Government said the new mortgage guarantee scheme will be permanently available from July 2025 and aims to “incentivise and sustain availability” of 91-95% LTV mortgages by offering participating lenders a Government-backed guarantee that will insure them against potential losses.
Mortgages offered through the scheme will be offered to first-time buyers and homemovers.
Specific details are expected to be shared this evening in Chancellor Rachel Reeves’ much-anticipated Mansion House speech.
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The permanent mortgage guarantee scheme was a manifesto commitment from the Labour Government. The scheme was launched in 2021 as lenders retrenched from higher-LTV lending due to economic and financial volatility due to the pandemic.
The latest HM Treasury figures for the mortgage guarantee scheme in its former form showed that it had totalled around 53,261 mortgage completions since its launch, representing around 1.4% of all residential mortgage completions during the past three years.
| Date | All 90% LTV deals | All 95% LTV deals |
| 01/07/2021 | 538 | 253 |
| 01/07/2022 | 598 | 316 |
| 01/07/2023 | 525 | 188 |
| 01/07/2024 | 792 | 361 |
Source: Moneyfacts
Rachel Springall, finance expert at Moneyfactscompare.co.uk, said the mortgage guarantee scheme launch is part of the Government’s “plan to boost first-time buyers and will be a permanent policy to improve UK growth”.
She continued: “Its creation should create a positive sentiment in the market and is designed to encourage more lenders to cater for borrowers with small deposits. As it stands, there are still very few deals on the market aimed at first-time buyers with just a 5% deposit, so any boost to product availability should be welcomed.
“First-time buyers are the lifeblood of the mortgage market, and they have been facing an excruciating situation to afford a mortgage, amid a short supply of affordable housing. Not everyone can be reliant on the ‘Bank of Mum and Dad’ to get a foot onto the property ladder, such as with a guarantor mortgage.
“This is why it’s so fundamental for lenders to support buyers with small deposits to keep the market moving. HM Treasury has also stressed any losses incurred through the scheme would be low, and that there is a cap on the size of the Government’s contingent liability of £3.2bn.”
Springall said this scheme, along with lenders relaxing stress tests and proposed reforms to loan-to-income (LTI) rules, were a “great combination for first-time buyers struggling to afford a mortgage”.
“However, those borrowing at the higher ends of the LTV spectrum will have little equity in their homes as a result, and disaster could strike if house prices were to plummet. Therefore, seeking advice before entering any arrangement is vital, especially to ensure a deal is picked based on a competitive rate, fees and incentives,” she added.
Permanent mortgage guarantee scheme a ‘good idea’ but ‘big questions remain’
Peter Stimson, director of mortgages at lender MPowered Mortgages, said the rebranded mortgage guarantee scheme was a “good idea”, but that it was “a year too late, and is missing one vital detail – the cost”.
He said: “The mortgage market has changed a lot since Rachel Reeves swept into 11 Downing Street last July. The base rate has come down by a full percentage point and hundreds of 95% LTV mortgage products are now available.
“Every lender who wanted to offer a 95% LTV loan is probably already doing so. The Chancellor’s announcement is unlikely to make dozens more suddenly follow suit – as the price of entry is unknown and will vary each year.”
Stimson said some of the risk burden is being moved between lenders and the Government, but that this wouldn’t necessarily translate into making mortgages cheaper for borrowers.
“Much like the Mortgage Guarantee Scheme it replaces, the capital offered to mortgage lenders is likely to be at market rate rather than discounted, so while first-time buyers who aren’t able to call on the Bank of Mum and Dad may find it slightly easier to get a mortgage with a 5% deposit, they will still pay some of the highest interest rates.
“For all the Chancellor’s fanfare, big questions remain over the cost of Freedom to Buy and it will tweak, rather than transform, lending to first-time buyers. She would have done better to bring back an updated version of the Help to Buy scheme to boost both housebuilding and access to finance. Would-be buyers need more homes to be built, rather than tinkering with a product that the market is already providing on its own,” he said.
This article was first published on YourMoney.com‘s sister site, Mortgage Solutions. Read: Govt confirms permanent mortgage guarantee scheme
