23 October 2023 , 08:01
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Jeremy Hunt could extend the mortgage guarantee scheme in his Autumn Statement next month, it has been reported.
The scheme allows first-time buyers to take out a mortgage with a 5% deposit - the Government then promises to cover some costs if your lender loses money, for example, if the property is repossessed. But the mortgage guarantee has been criticised for coming with more expensive rates compared to higher deposit home loans - you can see how it works below.
The mortgage guarantee scheme was extended for 12 months last year and is due to end in December, but The Sunday Times reports that the Government could extend it by another year. Any announcement would come in the Autumn Statement on November 22, however, the BBC reports that no final decision has been made yet.
Other help for first-time buyers reportedly being considered by the Treasury includes a new ISA product specifically for people saving to buy a property. In recent years, savers have been able to claim a 25% bonus from the Government through Lifetime and Help to Buy ISAs.
Help to Buy allows you to purchase a property worth up to £250,000, or £450,000 in London, while the limit for the Lifetime ISA is £450,000. You can no longer open a new Help to Buy ISA, although anyone has already opened an account can continue to save into it until November 2030.
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The Sunday Times reports the Chancellor is looking to potentially increase the £450,00 upper limit, to reflect rising house prices. The Mirror has contacted the Treasury for comment.
Mortgage guarantee scheme explained
The mortgage guarantee scheme allows would-be property buyers access to 95% loan to value (LTV) mortgages - meaning you need a 5% deposit - on properties worth up to £600,000. The Government then provides the guarantee for the mortgage to reduce the risk for the lender - for example, if the owner falls behind on payments and the property is repossessed, but the sale prices does not cover the outstanding mortgage amount.
The Government guarantees the portion of the mortgage over 80% - so, with a 95% mortgage, the remaining 15%. But the mortgage guarantee scheme, and 5% deals generally, are generally criticised for being more expensive as they come with much higher rates.
The bigger your deposit - so the more you can reduce your LTV ratio - the less your monthly repayments and fees will be. Martin Lewis ’ MoneySavingExpert website recommends buyers hold out for a 10% deposit if they can.
MSE also points out that mortgage guarantee scheme deals are “not special” in terms of being different to other 5% mortgage deals. The team wrote: “The scheme offers lenders surety so they can offer more mortgages. But they aren't any better for borrowers – so pick solely based on which offers the best terms.”