Help to Buy Mortgage Guarantee scheme to launch
People with a 5% deposit will be able to take advantage of a new Help to Buy mortgage guarantee scheme being announced in the Budget on Wednesday.
The scheme will be used to buy properties worth up to £600,000, while it will be available to both homeowners and first-time buyers.
Lenders will offer mortgages fixed for five years, while the scheme will provide a government guarantee to lenders in the event the property is repossessed.
This announcement is reminiscent of the last Help to Buy mortgage guarantee scheme, which was introduced to kickstart the housing market after the global financial crisis but closed for new lending at the end of 2016.
Since then, buyers have only been able to take advantage of the Help to Buy equity loan scheme, which is limited to new build properties.
The Help to Buy equity loan is itself changing shortly. For new builds constructed after 1st April 2021 a new version of the scheme will introduce regional price caps, while it will only be available to first-time buyers.
Reaction to the mortgage guarantee scheme has been largely positive, as buyers with smaller deposits have seen their options dwindle since the pandemic shocked the market.
Currently it’s far easier for buyers to secure a mortgage with a 10% deposit than 5% – though with the latter gives buyers a lot more wiggle room.
Indeed, they'd only need a £20,000 deposit to potentially buy a £400,000 home.
Mark Hayward, chief policy adviser, Propertymark, said: “A government backed mortgage guarantee scheme will help first-time buyers get on the housing ladder at a time when for many owning a home seems an impossible dream.
“Alongside the potential extension of the stamp duty holiday that we have been calling for, this new scheme will go some way in giving some hope to first time buyers at a time when the size of deposits required means they fall at the first hurdle.
“So by giving lenders the option of a government guarantee on 95% mortgages, many more products will become available, helping people to achieve their dream and get on the housing ladder.”
However Help to Buy isn’t without its critics.
It’s been widely argued for some time that the schemes push up house prices by stoking demand, which can make it harder for first-time buyers to get on the property ladder in the long-term.
After the short-termism of the stamp duty holiday, some could suggest the government is continuing this approach, potentially creating a house price bubble in future.
We’ll hear more details about the scheme in this week’s Budget, along with other announcements.
It’s likely there’ll be news about a stamp duty holiday extension, while the government could also allocate more funds to help those living in buildings with unsafe cladding.
Over to you Rishi Sunak.