First-time buyers face ‘stark reality’ with ‘limited’ Mortgage Guarantee Scheme | Personal Finance | Finance


The Government-backed Mortgage Guarantee Scheme has been extended to 2025, but experts are arguing the reach “is limited” and has only had a “moderate impact” on the housing market.

The scheme was launched by the Government in 2021 to help more Britons get on the housing ladder, primarily by increasing the availability of 95 percent Loan to Value (LTV) .

It aims to help borrowers with fewer savings take out a mortgage with a five percent deposit on a home worth up to £600,000.

The Government also provides a partial guarantee to the mortgage lender, covering up to 15 percent in case the borrower defaults on repayments. This assurance gives confidence to lenders, encouraging the reintroduction of higher loan-to-value mortgages.

The scheme was supposed to come to an end this year, but Chancellor announced its extension by 18 months during the Autumn Statement last week.

However, Karen Noye, a mortgage expert at wealth management firm Quilter, said: “Following the news last week that the Government plans to extend the mortgage guarantee scheme until June 2025, new data shows that the scheme has provided only a moderate impact on the housing market since its launch on April 19, 2021.

“By the end of June, 39,252 mortgages have been completed under this scheme.”

However, with the mean value of properties purchased or remortgaged through the scheme standing at £199,245, which is significantly lower than the national average house price of £287,546, Ms Noye said its reach “seems limited”.

She explained: “This gap indicates that first-time buyers, often constrained to loans of about 4.5 times their annual income, face a stark reality.

“For an average earner, this translates to a borrowing limit of just over £150,000, offering limited options in the housing market. Therefore, building a larger deposit or seeking financial help from family sources often becomes necessary to broaden their market choices.

“The extension of the scheme, though well-intentioned, may not significantly alter the current market dynamics.”

Rightmove property expert Tim Bannister said: “Any support for those with the smallest deposits is always welcome, however in reality the scheme is only able to help a very small portion of movers.”

However, he noted: “The proportion of mortgages that are taken out at the highest Loan-to-Value bracket is very small, with the majority of first-time buyers preferring to get the affordability benefits of saving for a bigger deposit.”

He said this makes the scheme “very limited”, and movers, particularly first-time buyers, may have been hoping for more to be announced during the budget.

Ms Noye also noted the “tangible concern” regarding negative equity, especially for those who purchased right at the top of the market.

Ms Noye said: “High loan-to-value ratios under this scheme place buyers at risk of negative equity, particularly if the housing market faces a significant and prolonged downturn.

“Those who purchased at the scheme’s average property value might find themselves in a precarious financial situation, burdened by negative equity and restricted mobility in the market.”

Ms Noye said the risk is compounded if they need to sell, as they would have to bear the cost of the negative equity, alongside moving expenses and a new deposit.

Subsequently, she noted: “While the scheme aims to assist first-time buyers, it is crucial to balance its benefits with safeguards that ensure long-term financial stability and market resilience against potential downturns.”

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