"Extending this scheme means thousands more have the chance to benefit, and supports the market as we navigate through these difficult times."
The government-backed 95% mortgage guarantee scheme has been extended by a further year.
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, and by first-time buyers, home movers and those remortgaging.
To date, the scheme has supported 24,000 households, with 85% of all loans going to first-time buyers.
Chief Secretary to the Treasury, John Glen, said: "For hard-working families facing today's challenging economic conditions, it is right that we continue to help them secure their first home or move into their dream house.
"Extending this scheme means thousands more have the chance to benefit, and supports the market as we navigate through these difficult times."
Brokers reacted to the news, welcoming further support for first-time buyers but raising concerns that the scheme increases borrowers' chances of getting into negative equity if house prices fall.
Gary Boakes, director at Verve Financial, said: "Any support for first-time buyers is a good thing at the moment. With several lenders recently pulling two-year fixed rate products at 95% and affordability and criteria being restricted, the higher LTV market was starting to look restricted. Hopefully, this will improve confidence among lenders."
Justin Moy, managing director at EHF Mortgages, commented: "The decision to extend the scheme is a no-brainer, but very welcomed within our industry. This will enable lenders to continue to offer mortgages to those with smaller deposits, with the additional risk covered by the government rather than the lender itself. To cover the predicted bump in property values and the subdued market, it would be prudent for lenders to offer these 95% mortgages on longer fixed terms, say 3-5 years, as that will hopefully cover any negative equity issues, so when the mortgage is ready for renewal, there is equity in the property. This will also help with checking a borrower's affordability. Even with a 95% mortgage commitment, this will be a cheaper option than renting in many parts of the UK."
Amit Patel, adviser at Trinity Finance, said: "This is a much-needed policy announcement that will enable buyers with a smaller deposit to get onto the housing ladder in the turbulent times we are going through. It would have been naive to withdraw the scheme given the dip in housing activity and the prevailing sentiment that house prices will drop in 2023/2024."
Graham Cox, director at Self Employed Mortgage Hub, commented: "Extending the Mortgage Guarantee Scheme will just encourage first-time buyers to get a 95% mortgage into a falling market. House prices could easily drop 20% over the next year to 18 months, so all this will do is increase borrower's chances of getting into negative equity and potentially being repossessed.
"The best thing the government can do for first-time buyers and support the economy is let house prices fall so they become more affordable. This will have the opposite effect."
Gaurav Shukla, director at home me, added: "Although this may be perceived as a good thing, the government just aren't doing enough to help first-time buyers. The lending limits remain in place from the lenders so many people are still struggling to buy with a 5% deposit, especially when most lenders cap lending to 4.5x income at this loan to value. The government's Help to Buy scheme has ended and this was a real boost in many people their first homes, and something very similar to this will need to be thought of, quickly."
