The scheme was introduced in 2021 by the Conservatives to boost the number of 5% deposit mortgages for first-time buyers (FTBs) at a time when they were disappearing from the market.
A handful of the high street lenders now offer mortgages through the MGS, which involves the government providing a guarantee for part of the mortgages at 95% loan-to-value (LTV). This reduces the risk for lenders and offers more options for home buyers with small deposits.
Although it was only a temporary measure initially, the Chancellor has extended the scheme to run until June 2025.
Now Labour has said, if it is elected into government, it will make the scheme permanent and rebrand it as ‘Freedom to Buy’.
It thinks this plan would help more than 80,000 more young people on the property ladder in the next five years.
There have been mixed reactions from mortgage professionals about Freedom to Buy.
Andrew Montlake, managing director at Coreco, speaking via the Newspage Agency, said: “This is a promising first offering from Labour and it is the permanent nature of the Freedom to Buy guarantee that could make all the difference, rather than having availability over a set period of time.
“This can allow lenders to take a longer term approach in their offerings and ensure that competitive products are continually available for those with lower deposits.
“Whilst it doesn’t solve the long term housing issues overnight, Labour have at least shown they understand them and have already shown they are willing to speak and engage with those on the front lines, which is more promising for the housing market as a whole should the next government be a red one.”
But others were sceptical and concerned Labour’s plan does not go far enough to address the housing crisis.
Kate Davies, executive director of the Intermediary Mortgage Lenders Association, said: “A shortage of 95% loan-to-value mortgages is not the issue in today’s market – there are more than 300 products available at this level right now.
She added: “It is not a great scheme from the lenders’ perspective, as it is expensive for them to use, and exclusive – signatories to the MGS are not permitted to combine these with 95% loans backed by their own, cheaper, private insurance schemes.
“Now there are plenty of 95% mortgages offered by a range of large and small lenders, funded without the government’s expensive scheme. But FTBs still need to meet affordability requirements to secure these loans.
“And the higher loan-to-value space is further restricted by the arbitrary ‘flow limit’ imposed by the Bank of England on mortgage providers who lend more than £100m a year. This limit prevents them from lending more than 15% of their home loans at more than 4.5 times the borrower’s income.”
Davies believed a review of this flow limit would be a more effective way of increasing the availability of higher loan-to-value mortgages to FTBs than perpetuating the Mortgage Guarantee Scheme.
“We’d happily talk to Labour’s – and other parties’ – policy makers to explain this issue to them in more depth” she added. “It’s in all our interests to improve the position for first-time buyers.”
