The government has confirmed the launch of a permanent Mortgage Guarantee Scheme - now rebranded as the Freedom to Buy initiative.
The permanent 95% LTV mortgage scheme replaces the government's previous Mortgage Guarantee Scheme which launched in 2021 and ended in June.
The new Mortgage Guarantee Scheme will be permanently available from July, aiming to incentivise and sustain availability of 91-95% LTV mortgages by providing participating lenders with a government-backed guarantee, insuring them against a portion of their potential losses on those mortgages. Mortgages offered through the scheme will enable eligible first-time buyers and home movers to buy a home with a deposit as small as 5% throughout the United Kingdom.
More than 53,000 mortgages were completed using the previous scheme, of which 86% were first-time-buyers.
Despite general support for the scheme when the Labour government first announced plans for it last year, Reeves' Mansion House confirmation has received a lukewarm response from mortgage industry experts.
Rob Owens, head of research at e.surv, commented: “The return of the Mortgage Guarantee Scheme is a positive signal for buyers struggling with deposits, but it’s unlikely to be a game-changer. While it helps reduce risk for lenders and opens the door to higher LTV lending, the previous scheme, launched in April 2021, made up a small share of lending - less than 2% of completions over its duration.
"With mortgage rates falling and affordability rules easing, more buyers may now be able to take advantage of the scheme. While recent government policy has focused heavily on boosting housebuilding, demand-side support to ease affordability pressures has been in short supply. This scheme offers some help - but without broader action to make homeownership more accessible, its impact may remain limited.”
A spokesperson from the HomeOwners Alliance said: "There’s not too much to get excited about here. The Mortgage Guarantee Scheme was originally launched to encourage lenders to offer 95% mortgages but lenders no longer need that nudge. Earlier this year, the number of 95% LTV mortgage deals hit nearly 400, the highest level in almost five years.
"Since the scheme operates entirely behind the scenes between lenders and government, we don’t expect first-time buyers will notice any difference. This feels more like a political gesture than a practical solution to the housing crisis.
"If the government really wants to support first-time buyers, it should turn its attention to fixing the Lifetime ISA. Right now, anyone forced to withdraw their savings early faces an unfair penalty — losing 6.25% of their own money. And the £450,000 property price cap hasn’t moved since LISAs launched in 2017, despite soaring house prices, particularly in the South East. Reforming LISAs would make a real, practical difference to those trying to get on the ladder.”
Jeremy Leaf, north London estate agent and former RICS residential chairman, added: “In order to encourage more first-time purchasing activity in particular, the government is refreshing its ‘Freedom to Buy’ as a replacement for the little-used Mortgage Guarantee Scheme (MGS). Since April 2021, the MGS offered a government-backed guarantee of up to 15% of the purchase price of a brand new or existing home up to £600,000 to buyers with at least a 5% deposit including compensation for lenders in the event of default.
“Figures from last December show the scheme helped to complete only 53,261 mortgages of which 86% were for first-time buyers - especially in lower value areas – with an average price of just £211,616, compared to the national average of £268,000 at the time. A higher proportion of purchasers were supported in the North West, South East and Scotland with a smaller share in the North East, London, Wales and Northern Ireland. The low take-up was partly because most single first-time buyers on the UK median wage did not qualify.
“Therefore, the new arrangements must be sufficiently generous to improve affordability for the ‘young families and hardworking renters’ sought out by the Government, not just in a limited number of areas as previously but in places where purchase prices are higher relative to incomes. On the other hand, more high loan-to-value mortgages may also increase the risk of negative equity in the present fairly volatile market without sufficient supply to keep prices in check so a delicate balance must be struck.
“The Government have talked a good game as far as improving housing supply is concerned but until clear change is apparent on the ground, Freedom to Buy will only push up prices and make it more expensive not only for existing but future first-time buyers.
“The new arrangement is unlikely to make a difference unless more help can be given to buyers especially those with a 4.5 times loan-to-income ratio wishing to raise deposits - rather than increasing availability of mortgages.
“In our offices, the ending of the stamp duty concession in March clearly showed how much of a deterrent finding those upfront costs are to first purchasers in particular. More assistance in that regard is essential to significantly improve activity not just in the housing market but job and social mobility generally, bearing in mind its hugely positive impact on wider economic growth.”
Peter Stimson, director of mortgages at MPowered Mortgages, agreed: “Kudos to the Chancellor for delivering on an election pledge. The rebranded Mortgage Guarantee Scheme is a good idea. The trouble is it’s a year too late, and is missing one vital detail - the cost.
“The mortgage market has changed a lot since Rachel Reeves swept into 11 Downing Street last July.
“The Base Rate has come down by a full percentage point and hundreds of 95% LTV mortgage products are now available.
“Every lender who wanted to offer a 95% loan is probably already doing so. The Chancellor’s announcement is unlikely to make dozens more suddenly follow suit - as the price of entry is unknown and will vary each year.
“The Freedom to Buy scheme shuffles some of the risk burden between lenders and the Government, but don’t expect it to make mortgages cheaper for borrowers.
“Much like the Mortgage Guarantee Scheme it replaces, the capital offered to mortgage lenders is likely to be at market rate rather than discounted.
“So while first-time buyers who aren’t able to call on the Bank of Mum and Dad may find it slightly easier to get a mortgage with a 5% deposit, they will still pay some of the highest interest rates.
“For all the Chancellor’s fanfare, big questions remain over the cost of Freedom to Buy and it will tweak, rather than transform, lending to first-time buyers.
“She would have done better to bring back an updated version of the Help to Buy scheme to boost both housebuilding and access to finance.
“Would-be buyers need more homes to be built, rather than tinkering with a product that the market is already providing on its own.”
