Government extends Mortgage Guarantee Scheme again

Property industry experts react to Autumn Statement

Government extends Mortgage Guarantee Scheme again

Aiming to support homebuyers with smaller deposits, the government has extended the Mortgage Guarantee Scheme for an additional 18 months until the end of June 2025.

The extension of the scheme, which supports the availability of 95% loan-to-value (LTV) mortgages and was initially due to close by the end of this year, was confirmed in the Autumn Statement delivered by Chancellor of the Exchequer Jeremy Hunt on Wednesday.

The Mortgage Guarantee Scheme was first announced in the Spring Budget of 2021 to provide home buyers the opportunity to secure mortgages with just a 5% deposit. The scheme is available to all homebuyers in the UK, not just first-time home buyers, on properties valued at £600,000. Lenders like banks and building societies are encouraged to offer 95% mortgages with the UK government guaranteeing outstanding loans.

The government, in December 2022, also extended the scheme by one year.

Industry experts welcomed the news of the program’s extension, but at the same time, many of them felt that the Autumn Statement where the housing market is concerned was underwhelming overall.

“It is good news that the Mortgage Guarantee Scheme has been extended as this will give lenders the incentive to offer mortgages to people with small deposits,” James Bull, mortgage broker at JB Mortgages, commented. “However, this is just a small sector of buyers, so it will do little to boost a flagging housing market.”

Karen Noye, mortgage expert at Quilter, said that the extension of the Mortgage Guarantee scheme until June 2025 is “really the least the government can do for first-time buyers.”

“The scheme has so far not been particularly impactful and will likely continue not to be,” she pointed out. “Generally, first-time buyers will find themselves limited to a maximum of 4.5 times their annual income. For those on the average salary, this means they can only borrow just over £150,000 giving the buyer not much choice in the market.”

This view was shared by Rachael Sinclair, director of mortgages and financial wellbeing at Nationwide Building Society.

“We welcome all measures that can play a role in helping people buy their first property, including the Mortgage Guarantee Scheme extension, but we are disappointed that it continues to restrict qualifying loans to 4.5 times income as research shows that most homes remain unaffordable through the scheme,” Sinclair stated. 

Noye added that “the extension makes little difference today, and had Hunt instead opted to simply get rid of it, it likewise wouldn’t have had much impact.”

Arjan Verbeek, chief executive at Perenna, also said that while any extension to the mortgage guarantee scheme will be welcomed by first-time buyers, it is only a quick fix.

“The reality is that even would-be homeowners with a 5% deposit may find themselves priced out and unable to borrow a large enough loan to get onto the housing ladder. This is, in part, due to a mortgage market dominated by short-term fixed rate products.

“Instead of ballot box boosting short-termism, policymakers and regulators should instead focus on creating a mortgage market that improves access to products that get more first-time buyers onto the housing ladder, better protect homeowners from fluctuating interest rates, and will see housebuilders building again.”

According to Robin Fieth, chief executive of the Building Societies Association, supporting first-time buyers on to the property ladder is a key requirement for an active housing market and the extension of the 95% mortgage guarantee scheme is therefore a welcome move by the Chancellor.

“While the numbers are small, the scheme gives confidence to the market and ensures competition remains in the low deposit mortgage space,” Fieth said.

“While we welcome the measure to support housing in the Autumn Statement, we need more than this and call for a long-term government plan and a firm commitment to resolve the housing supply conundrum, to support first-time buyers on to the property ladder and to ‘green’ our homes, both new builds and existing properties.”

“Hunt struck some positive notes,” Jatin Ondhia, chief executive of Shojin, remarked. “But overall, this was a lacklustre statement for the property sector, with little of substance to excite those building, buying and investing in UK real estate.”

For Marc von Grundherr, director of Benham and Reeves, Hunt delivered an “underwhelming Autumn Statement where the housing market is concerned.

“Much like unwrapping a pair of socks on Christmas Day, it lacked imagination and left us feeling largely disappointed,” he said. “It’s clear they have run out of ideas when it comes to addressing the current issues plaguing the property market. Hardly surprising when we have housing ministers coming and going more frequently than the postman.”

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