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Autumn Statement 2023: Mortgage guarantee scheme extended to 2025

  • 22/11/2023
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Autumn Statement 2023: Mortgage guarantee scheme extended to 2025
The mortgage guarantee scheme will be extended to the end of June 2025 to “continue helping prospective borrowers with a smaller deposit buy a home”.

The extension is part of Autumn Statement measures and was not mentioned directly in the speech given by Chancellor Jeremy Hunt.

The scheme was due to expire on 31 December 2023 having been extended for one year at the tail-end of last year.

It was launched in April 2021 in response to higher loan to value (LTV) mortgages almost disappearing from the market during the pandemic.

The scheme works by offering lenders the option to buy a guarantee on mortgages for borrowers with lower deposits. This compensates lenders for a portion of net losses if the property has to be repossessed.

The guarantee applies down to 90 per cent of the purchase value to the property, covering 95 per cent of net losses. The lender retains five per cent risk in the portion of losses covered by the guarantee.

The latest figures from the scheme indicate that total number of mortgages completed reached 37,376 in March, and represented 0.9 per cent of all residential completions.


Extension is a ‘quick fix’

Rachael Sinclair, director of mortgages and financial wellbeing at Nationwide Building Society said: that it welcomed “all measures that can play a role in helping people buy their first property”.

However, she said that it was “disappointed” that the scheme continues to restrict qualifying loans to 4.5 times income as research shows that most homes remain unaffordable through the scheme.

Sinclair continued: “Owning a home remains an aspiration for many, which is why as a leading lender to first-time buyers, Nationwide has continually offered products to those with small deposits outside of the Mortgage Guarantee Scheme including our Helping Hand range which lends up to 95 per cent LTV and up to 5.5 times income.

“However, more needs to be done. That is why we continue to call on the government to commission an independent review into the first-time buyer market. This will provide much-needed clarity on issues that continue to hamper prospective homebuyers, such as the lack of new homes and the need for products that address the equally significant barriers of deposit and affordability.”

Arjan Verbeek, CEO at Perenna, said that any extension to the scheme would be welcomed by first-time buyers but noted it was a “quick fix”.

He explained: “The reality is that even would-be homeowners with a five per cent 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.

“This lack of choice puts all the risk on hard-pressed consumers, limiting their borrowing power at a time when house-prices remain stubbornly high. Instead, we must build the foundations of a fairer housing market increasing the availability of long-term fixes which boost affordability by letting consumers borrow up to 30 per cent more.”

Verbeek called for policymakers and regulators to “focus on creating a mortgage market that improves access to products that get more first-time buyers onto the housing ladder” and to “better protect homeowners from fluctuating interest rates” as opposed to “ballot box boosting short-termism”.


Scheme ‘will likely continue not to be impactful’

Karen Noye, mortgage expert at Quilter, added that extending the scheme to 2025 was the “least the government can do for first-time buyers”.

She said that the scheme has “not been particularly impactful and will likely continue not to be”.

“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 £150k giving the buyer not much choice in the market.

“Saving for a bigger deposit or raiding the Bank of Mum and Dad can therefore offer more choice. This extension makes little difference today and had Hunt instead opted to simply get rid of it, it likewise wouldn’t have had much impact,” Noye explained.

She continued that with a higher LTV loan there was a “risk of negative equity”, which was a “significant concern” in the housing market especially for those who buy properties at “peak prices”.

“If the housing market experiences a downturn, individuals who utilised the scheme may find themselves in a challenging financial position, struggling with negative equity and limited mobility. This situation could be further exacerbated if they need to sell their homes, as they would have to cover the negative equity, moving costs, and a new deposit.

“Therefore, while the scheme’s intentions are positive, it’s crucial to implement measures that ensure long-term stability for new homeowners and the housing market. This might include more stringent eligibility criteria or additional support mechanisms to safeguard against market fluctuations,” Noye explained.

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