Wednesday 3 March 2021 3:09 pm

Budget 2021: Government to guarantee five per cent mortgages on homes up to £600,000

The government will introduce a new scheme that will allow individuals to put down just a five per cent deposit on homes valued up to £600,000.

From April, the government will introduce a the scheme that will provide a guarantee to lenders across the UK that offer mortgages to people with a deposit of five per cent on homes with a value of up to £600,000.

When the Chancellor announced the policy, he said he wanted to “turn Generation Rent into Generation Buy”.

Although Chancellor Rishi Sunak placed emphasis on the scheme being targeted at first-time buyers, the scheme, which will run until 31 December 2022, it open to anyone.

Opposition leader Kier Starmer criticised the move, saying the policy was merely the reincarnation of a previously “failed policy” put together by former Prime Minister David Cameron and his Chancellor George Osborne.

Back when it was first announced some years ago, Starmer said, the policy helped to drive up house prices, making it more challenging for first-time buyers to get on the ladder.

Russell Gardner, EY UK & Ireland Head of real estate, said the new scheme, coupled with the stamp duty extension, would likely benefit sellers, rather than buyers.

“The stamp duty holiday extension and the new mortgage guarantee scheme are good news items for the housing market as they are measures designed to stimulate demand. The monetary benefits will primarily flow to sellers rather than buyers as the increase in demand will inevitably push prices up.”

The stamp duty holiday was extended to the end of June as part of the budget, followed by a tapering off period featuring a slightly less generous stamp duty holiday until the end of September.  

IEA economics fellow Julian Jessop described the scheme as “a bad idea”, adding: “It will simply make it easier for young people to overstretch themselves in the housing market, while artificially stoking demand and raising house prices even further. The focus should instead have been on increasing housing supply.”

The news was however welcomed by house builders. Brendan Sharkey, head of construction and real estate at MHA MacIntyre Hudson said the budget was “extremely positive” for the sector.

“It is rare to listen to such an encouraging budget and confidence will have increased markedly across the construction sector after hearing the Chancellor speak. The extension of Stamp Duty relief makes perfect sense given the backlog of housing purchases. The tapering of relief through to April 2022 takes the angst out of deadlines while stimulating the number of transactions and new builds, which is all good news for the economy,” he said.

“In fact, when this is combined with the Chancellor’s new government mortgage guarantee scheme we could see an unprecedented rush to buy. So the only question is whether the developers can meet the demand as it takes time to bring stock to the market.”