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First-time home buyers or those with small deposits will have an extra year to make use of a UK government mortgage guarantee scheme after ministers put off its closure until the end of 2023.
The guarantee is designed to give banks and building societies the confidence to lend to low-deposit and first-time homeowners, who have seen their borrowing options dwindle following a surge in mortgage rates over the past year and worries over recession and the outlook for house prices.
Lenders have withdrawn many products at high loan-to-value ratios as the housing market picture has darkened. Halifax last week said it predicted house prices would fall by 8 per cent in 2023.
The number of fixed and variable mortgage products available to residential buyers with a 5 per cent deposit has more than halved from 353 on December 1 2021 to 130. For those with a 10 per cent deposit, their choices have narrowed from 706 mortgage deals to 467, according to data from finance site Moneyfacts.
The government scheme was launched last year during the pandemic, as lenders fled the market for low-deposit loans amid widespread uncertainty over the housing outlook, and had been due to close at the end of this year. 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.
From the scheme’s launch in April 2021 to June 2022, it helped 24,153 buyers purchase a home, 85 per cent of whom were first time buyers. The total value of mortgages supported by the initiative over that period was £4.4bn, according to Treasury data.
Mortgage interest rates have fallen back slightly since the September “mini” Budget of former prime minister Liz Truss’s government unleashed turmoil on bond markets and pushed up home loan rates to their highest level since the 2008 financial crisis.
However, they remain significantly higher than this time last year, with the average rate on a two-year fixed rate deal running at just below 6 per cent compared with 2.4 per cent in December 2021, Moneyfacts said.
The government said it was right to continue its support for families facing “today’s challenging economic circumstances”. John Glen, chief secretary to the Treasury, said: “Extending this scheme means thousands more have the chance to benefit, and supports the market as we navigate through these difficult times.”
David Hollingworth, director at mortgage broker L&C, suggested the government’s original timeline for withdrawing the scheme now appeared out of kilter with market sentiment.
“It would feel unusual timing to withdraw it when you’ve got lower activity levels, consumer confidence dented by impact of the ‘mini’ Budget and uncertainty ahead alongside the rising cost of living,” he said.
The news was welcomed by UK Finance, the trade body for the country’s financial sector. “We look forward to continuing our work with government and existing lenders on the scheme,” said Charles Roe, director of mortgages at UK Finance.
The guarantee scheme was set to close two months after Help to Buy, a separate government housing support scheme, ended to new applicants at the end of October.
The Help to Buy Isa, a savings product for first time buyers, closed to new applicants in November 2019 but the Lifetime Isa, where savings are boosted by the government and can be used for a housing deposit or held until retirement, remains available.
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