"We are disappointed that it continues to restrict qualifying loans to 4.5 times income as research shows that most homes remain unaffordable through the scheme."
- Rachael Sinclair, director of mortgages at Nationwide
The government-backed 95% Mortgage Guarantee Scheme has been extended until the end of June 2025.
In the full Autumn Statement document, the government announced that it "will extend the scheme for an additional 18 months until the end of June 2025 to continue helping prospective borrowers with smaller deposits buy a home".
The scheme, which launched in April 2021 and was due to close at the end of December, is designed to encourage lending at 95% LTV.
The scheme allows both first-time buyers and current homeowners to purchase properties up to £600,000 with a 5% deposit. It can be used for mortgages on both new build and existing homes by first-time buyers, home movers and those remortgaging.
The latest government data shows that from the scheme's launch in April 2021 to the end of March 2023, 37,376 mortgages have been completed through the scheme with a total value of £7 billion. Of these, 86% were first-time buyers.
The scheme was previously extended at the end of 2022 for a further year, however NatWest subsequently withdrew from the scheme after expanding its 95% LTV offering.
However, analysis from Rightmove using the latest earnings data from ONS shows single first-time buyers on the average salary could not afford to use the government’s 95% Mortgage Guarantee Scheme on three quarters of properties in the typical first-time buyer market.
In London, a single first-time buyer on an average London salary could afford only 2% of properties using this 5% deposit scheme, compared to 67% of properties for those in the North East.
But options to use the scheme greatly open up for those buying with a partner, friend or family member, with 70% of first-time buyer properties in Great Britain within the affordability limit of the average two-person income.
Matt Smith, Rightmove’s mortgage expert, commented: “Any focus and support for those with the smallest deposits is always going to be welcome. However, in reality the Mortgage Guarantee Scheme is only able to help a very small portion of movers, with the majority of first-time buyers preferring to get the affordability benefits of saving for a bigger deposit. If the scheme was cancelled then it may be seen as a disappointing outcome by some, but in reality it’s unlikely to have a significant impact on consumer choice, as many lenders are offering 5% deposit deals outside of the government scheme.”
Rachael Sinclair, director of mortgages and financial wellbeing at Nationwide, said: “We welcome all measures that can play a role in helping people buy their first property, including the Mortgage Guarantee Scheme extension but we are disappointed that it continues to restrict qualifying loans to 4.5 times income as research shows that most homes remain unaffordable through the scheme. Owning a home remains an aspiration for many, which is why as a leading lender to first-time buyers, Nationwide has continually offered products to those with small deposits outside of the Mortgage Guarantee Scheme including our Helping Hand range which lends up to 95% LTV and up to 5.5 times income.
“However, more needs to be done. That is why we continue to call on the government to commission an independent review into the first-time buyer market. This will provide much-needed clarity on issues that continue to hamper prospective homebuyers, such as the lack of new homes and the need for products that address the equally significant barriers of deposit and affordability.”
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. Generally, first time buyers will find themselves limited to a maximum of 4.5 times their annual income. For those on the average salary this means they can only borrow just over £150k giving the buyer not much choice in the market. Saving for a bigger deposit or raiding the Bank of Mum and Dad can therefore offer more choice. This extension makes little difference today and had Hunt instead opted to simply get rid of it, it likewise wouldn’t have had much impact.
“With such a high LTV there is also the risk of negative equity, which is a significant concern in this property market, especially for those who purchase properties at peak prices. If the housing market experiences a downturn, individuals who utilised the scheme may find themselves in a challenging financial position, struggling with negative equity and limited mobility. This situation could be further exacerbated if they need to sell their homes, as they would have to cover the negative equity, moving costs, and a new deposit. Therefore, while the scheme's intentions are positive, it's crucial to implement measures that ensure long-term stability for new homeowners and the housing market. This might include more stringent eligibility criteria or additional support mechanisms to safeguard against market fluctuations.”
