First-time home buyers or those with small deposits will have an extra year to use a UK government mortgage guarantee scheme after ministers postponed 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 spike in mortgage rates over the past the past year and concerns about the recession and the outlook for home prices.
Lenders withdrew many products at high loan-to-value ratios as housing market conditions soured. Halifax said last week it expects house prices to fall 8% in 2023.
The number of fixed and variable mortgage products available to homebuyers with a 5% deposit has more than halved, from 353 on December 1, 2021 to 130. For those with a 10% deposit, their choices have narrowed. reduced from 706 mortgage transactions to 467, according to data from the financial site Moneyfacts.
The government scheme was launched last year during the pandemic as lenders fled the low-deposit loan market amid widespread uncertainty over the housing outlook, and was due to close at the end of this year. It provides security on the part of the mortgage above 80% for properties worth up to £600,000. Buyers must have a down payment of at least 5 percent.
From the program’s launch in April 2021 through June 2022, it has helped 24,153 buyers purchase a home, 85% of whom were first time buyers. The total value of mortgages backed by the initiative over this period was £4.4bn, according to Treasury data.
Mortgage interest rates have fallen slightly since former Prime Minister Liz Truss’ government’s September ‘mini’ budget sparked turmoil in bond markets and pushed mortgage rates to their highest level since the financial crisis of 2008.
However, they remain significantly higher than at the same time last year, with the average rate on a two-year fixed-rate deal standing just below 6%, up from 2.4% in December 2021, said Moneyfacts.
The government said it was right to continue its support for families facing “today’s difficult economic situation”. John Glen, Chief Secretary to the Treasury, said: ‘The extension of this scheme means thousands more are lucky enough to benefit and supports the market as we weather these difficult times.’
David Hollingworth, director of mortgage brokerage L&C, suggested the government’s original timetable for withdrawing from the scheme now seemed at odds with market sentiment.
“It would seem unusual to withdraw it when you have lower activity levels, consumer confidence shaken by the impact of the ‘mini’ budget and the uncertainty ahead alongside the rising cost of living,” said he declared.
The news was welcomed by UK Finance, the country’s financial sector trade body. “We look forward to continuing our work with the government and existing lenders on the scheme,” said Charles Roe, mortgage director at UK Finance.
The guarantee scheme was due to end two months after Help to Buy, a separate government housing assistance scheme, ended at the end of October for new applicants.
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 retired, still available.