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Chancellor Rachel Reeves will next week launch a permanent mortgage guarantee scheme to help first time buyers get on the housing ladder during times of economic stress.
Reeves will confirm the government-backed scheme in her Mansion House speech, as part of a range of measures that she claims will help ordinary voters with their finances, according to officials briefed on her plans.
In April 2021, the Conservative government launched a mortgage guarantee scheme during the Covid pandemic, but it was intended to be a temporary measure and expired at the end of last month.
Reeves will confirm Labour’s manifesto pledge to make the scheme permanent, with the state guaranteeing mortgages to help buyers with deposits as low as 5 per cent, especially in difficult economic times.
Under the scheme, rebranded Freedom to Buy, lenders will pay a fee to the Treasury to provide guarantees against potential losses on 95 per cent loan-to-value mortgages in the event of repossession.
Emma Reynolds, City minister, said last month that the “maximum contingent liability under the scheme will be capped at £3.2bn” but that the Treasury judged the risk to the taxpayer as “low”.
Reynolds, in a letter to Sir Geoffrey Clifton-Brown, chair of the House of Commons public accounts committee, said: “Our new scheme will ensure those with a deposit as small as 5 per cent can access suitable mortgage products.”
Fees paid by lenders to the Treasury to access the scheme are intended to cover potential liabilities, and the £3.2bn cap on contingent liabilities will be at the same level as that set by the Conservatives in December 2022.
Reynolds said: “The scheme will be permanently available, ending the stop-start availability of the existing, temporary scheme and giving lenders confidence to offer these mortgage products through the economic cycle.”
Reeves’ Mansion House speech on July 15 will be her first major intervention since the collapse of the government’s welfare reforms this month and her subsequent tearful appearance in the House of Commons.
Her address to City grandees will also set out reforms to the Isa system to encourage more savings to be put into stocks and shares, rather than cash, with the aim of generating higher returns.
Paul Broadhead, head of mortgage and housing policy at the Building Societies Association, welcomed the announcement of a permanent mortgage guarantee scheme, but said it was also crucial that the government delivers on its promise to boost housing supply.
Pete Dockar, the chief commercial officer of the small lender Generation Home, which is focused on getting first-time buyers on to the property ladder, said: “Its real advantage is probably to smooth the cycle.
“Typically in downturns lenders tend to restrict the availability of these sorts of products and what is nice is having that backstop means lenders will feel more incentivised to keep these products in the market.”
But Martin Stewart, founder of the mortgage broker London Money, called the scheme “pointless”.
“It has increased the number of available products which will help some first-time buyers and other borrowers, but regardless of that, the lenders will still proceed with caution regardless of whether the government has agreed to underwrite some of the losses,” he added.
