The industry has reacted in a lukewarm fashion to Chancellor Jeremy Hunt extending the mortgage guarantee scheme to June 2025, calling it ineffective.
Experts have said the changes to the scheme, which was originally due to end in December, do not go far enough, as they urged Hunt to ramp up measures.
The scheme, introduced by then Chancellor Rishi Sunak in 2021, helps first-time buyers take out a mortgage with a five per cent deposit on homes worth up to £600,000.
The government protects lenders of the 95 per cent loans by pledging to cover losses in the case that the borrower cannot pay their mortgage.
Critics of the policy argue it can only help a small portion of buyers, with most opting to save for a bigger deposit.
“The mortgage guarantee scheme was a good short-term measure to get 95 per cent mortgages back on the market mid-Covid, but there are plenty of 95 per cent offerings now that do not utilise the mortgage guarantee scheme so extending it really wouldn’t add much value to borrowers,” Chris Sykes, technical director at Private Finance, told City A.M.
Natwest withdrew from the scheme last December after launching its own 95 per cent offering.
Chris Gardner, joint chief executive of specialist property finance lender Atelier, said the announcement “should be met with scepticism”. He noted that just four lenders are signed up for the scheme, which “has had a negligible impact on the delivery of new homes”.
Karen Noye, mortgage expert at Quilter, added: “The extension of the mortgage guarantee scheme until June 2025 is really the least the government can do for first-time buyers. The scheme has so far not been particularly impactful and will likely continue not to be.”
Rachael Sinclair, director of mortgages at Nationwide, said the building society was “disappointed that it continues to restrict qualifying loans to 4.5 times income as research shows that most homes remain unaffordable through the scheme”.
Tim Bannister, Rightmove’s property expert, 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.
“This in effect makes the scheme very limited, and movers, particularly first-time buyers, will have been hoping for more today.”
Mortgages have become more expensive this year due to higher interest rates from the Bank of England, while many borrowers are also struggling with the cost of living.
UK Finance reported earlier this month that there were 87,930 mortgages in arrears of 2.5 per cent or more of their outstanding balance in the third quarter, up 7 per cent from the previous quarter.