Government extends ‘generation buyout’ mortgage guarantee

The government is expanding the mortgage guarantee scheme, which helps buyers with small deposits to climb the property ladder as high borrowing costs threaten to put the brakes on Britain’s housing market in 2023.

The scheme, launched in April 2021, was billed as a way to help turn generation rents into “generation byte”. It was supposed to end this month but the government said it will now run till the end of next year. The Treasury said the scheme has helped more than 24,000 households across the UK, with first-time buyers behind 85% of transactions.

The initiative is supported by banks and building societies who provide 95% of the loan, meaning buyers only have to raise 5% themselves on homes worth up to £600,000. These high loan-to-value (LTV) products are primarily used by first-time buyers who struggle to raise a deposit, given the tremendous increase in home prices in recent years.

With families facing challenging economic circumstances, John Glenn, Chief Secretary to the Treasury, said “it is right that we continue to help them secure their first home or move into their dream home”. “Extending the scheme means thousands more people have the chance to benefit, and supports the market as we navigate through these difficult times.”

The scheme encourages lenders to offer these deals in uncertain times as they can buy guarantees on part of the mortgage between 80% and 95%. If a borrower gets into financial difficulty and his property is repossessed, the government will cover that part of the lender’s loss.

These high LTV products are often withdrawn during times of turmoil as happened during the pandemic when predictions of huge price falls rocked the market. By January 2021, only 95% of mortgage deals were left on sale and the government said the scheme had helped restore consumer choice and competition, benefiting businesses and strengthening the market.

The number of low-deposit 95% mortgages on sale fell in the financial turmoil following Quasi Kwarteng’s mini-budget, and it emerged in the autumn that the government was considering expanding the scheme.

David Hollingsworth, an associate director at broker firm L&C Mortgage, said given the current uncertainty – last week the lender Halifax forecast an 8% drop in house prices in 2023 – it would be a “bad time” to withdraw government support . “You will be removing a strut at a time when market activity is down and there are question marks about home prices,” he said.

When the guarantee scheme was brought in last year, there was a 95% mortgage shortfall and it acted as a catalyst to bring that part of the market back to life, he said. “Now it’s just a matter of not taking out something that could impact this market where availability is still there.”

The mortgage guarantee scheme is different from the government’s help-to-buy scheme. Under Help-to-Buy, the government will lend between 5% and 20% of the full purchase price of a newly built home to a buyer in England, or up to 40% in London.

The buyer still needed a 5% deposit but the government loan meant a smaller mortgage. However, the aid-to-buy applications had a deadline of 31 October and buyers would legally have to complete them by 31 March when it officially expires.


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