Treasury weighs extending UK mortgage scheme to help first-time buyers

The Treasury is considering extending a mortgage scheme aimed at first-time buyers beyond the end of the year in response to recent turbulence in the home loan market that has led to a sharp rise in interest rates.

Prolonging the mortgage guarantee scheme was one of the ideas put forward by bank bosses at a meeting with chancellor Kwasi Kwarteng on Thursday, according to people familiar with the matter.

The chief executives of the UK’s largest lenders were summoned by Kwarteng to discuss the turmoil in the home loans market following his “mini” Budget at the end of last month. Lenders withdrew more than 1,600 mortgage products as a result of volatile gilt markets, which banks use to price fixed-rate loans.

The scheme, launched during the coronavirus pandemic, helps first-time buyers and those with small deposits secure loans. It offers a guarantee on the portion of the mortgage over 80 per cent for properties worth up to £600,000. Buyers must have a deposit of at least 5 per cent.

One source close to the situation said the Treasury had indicated it would consider an extension to the scheme. Concerns were also raised at the meeting about the effect of fast-rising interest rates on the buy-to-let sector and the impact on more vulnerable customers on interest-only mortgages.

Ian Stuart, chief executive of HSBC UK, Charlie Nunn, chief executive of Lloyds Banking Group, Alison Rose, chief executive of NatWest, and Matt Hammerstein, chief executive of Barclays UK, were at the meeting.

Ray Boulger, broker at John Charcol, said an extension of the mortgage guarantee scheme would be “good news for anyone in need of a mortgage with only a 5 per cent deposit.”

Aaron Strutt, broker at Trinity Financial, said: “Frustratingly higher rates and tighter stress tests result in smaller mortgages and more expensive repayments, which is clearly not going to help most first-time buyers.”

Interest rates on mortgages have risen sharply since the chancellor’s fiscal statement on September 23. The average interest rate on five-year, fixed-rate mortgages went above 6 per cent on Thursday for the first time since 2010, according to Moneyfacts.

The rate on two-year fixed-rate deals also continued to climb, reaching 6.11 per cent. Many banks have also increased the interest rate “stress tests” they apply, to see if borrowers can afford to repay a mortgage, to about 8 per cent.