The Mortgage Guarantee Scheme is to be extended by another year, it was announced in today’s Autumn Statement.
It was one of only a few measures mentioned by Chancellor Jeremy Hunt which would benefit homebuyers, homeowners or those grappling with soaring mortgage costs.
The scheme, which aims to help more first-time buyers with small deposits of 5% to 9% to take out a mortgage, will now continue until June 2025. It had been due to end this year.
Under the initiative, the government guarantees mortgages of 95% loan-to-value issued by mortgage lenders. This offsets the risk for the lender of offering such high loans, meaning they can provide these low deposit deals to greater numbers of first-time buyers.
Although this has been welcomed, many mortgage and housing experts were disappointed about the absence of other support for those struggling to pay mortgages following steep rate rises in the last two years and the cost-of-living crisis.
Shadow Chancellor Rachel Reeves, speaking in response to Jeremy Hunt’s Autumn Statement observed there had been no announcements which would ‘remotely compensate’ for the impact of mortgage hikes and the rising cost of living.
The Chancellor announced he would be cutting National Insurance by 2% to 10% and increasing the National Living Wage to £11.44 per hour from 6 January.
He also said he would be unfreezing Local Housing Allowance, a move which will help low-income renters by giving them a financial boost of £800 a year on average.
But there was no mention of improvements to the Lifetime ISA savings scheme for first-time buyers nor the Stamp Duty cuts which many had been hoping for.
Sam Mitchell, CEO of Purplebricks, was among those who had been hoping for more to help the housing market in today’s statement.
“By failing to cut stamp duty and cut it permanently, the government has missed an opportunity to set the already fragile housing market on a clear path to recovery,” he said.
“Rumours will now grow that we will see a cut in the spring, meaning decisions on buying and selling will be delayed and the economy will suffer. This has already been a difficult year for the property sector, and the lack of support will threaten a recovery in 2024.”
He added: “Despite this, the silver lining is the confirmation of the extension to the Mortgage Guarantee Scheme. Not only does this support the green shoots we are already seeing in the lending market, but is great news for first time buyers, especially if coupled with the declining rates we are seeing in the market.”
We need ‘long-term stability for new homeowners’
But not everyone was convinced the scheme’s extension alone was enough for first-time buyers.
Karen Noye, mortgage expert at Quilter, said the extension was the least the government could do. “The scheme has so far not been particularly impactful,” she said, “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.”
She added: “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.”
