The government has shared details of its new mortgage guarantee scheme, which is set to be launched in July. Mortgages offered through the scheme will enable eligible first-time buyers and home movers to buy a home with a deposit as low as 5%. Eligibility criteria has not yet been defined.
The scheme will be permanently available with the aim of incentivising and sustaining availability of 91-95% loan-to-value mortgages through the economic cycle. Lenders will be provided with a government-backed guarantee to insure against a portion of any potential losses on those mortgages.
Guarantees issued under the scheme will be valid for up to seven years after the mortgage is originated. Participating lenders will pay HM Treasury a fee for each mortgage, which will be set and regularly reviewed so that expected claims against the guarantee should be covered by revenue from the fee.
To limit the government’s exposure from the scheme, there will be a £3.2 billion cap on the size of the contingent liability. HM Treasury has approved the proposal in principle.
Emma Reynolds, economic secretary to the Treasury, said of the scheme:
“Supporting first-time buyers is at the heart of this government’s housing strategy as we aim to build 1.5 million new homes this Parliament. The government recognise the difficulties that many aspiring homeowners face in getting on the housing ladder—in particular, the challenge of raising a sufficient deposit for a home. To tackle this problem head on, we committed to introduce a permanent mortgage guarantee scheme in our election manifesto to ensure buyers with smaller deposits can get a mortgage and fulfil their home ownership ambitions.”
