The failed mortgage scheme at the heart of Labour’s housing strategy

Aspiring homeowners offered little incentive to get on Britain’s post-Budget property ladder

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For all of its pre-election promises, Labour’s Budget offered little incentive to first-time buyers hoping to get on Britain’s property market.
The single scrap thrown to aspiring homeowners was the decision to make permanent the mortgage guarantee scheme, a Tory initiative introduced in 2021 to boost homeownership.
The scheme offered to insure banks and building societies who agreed to lend to buyers with small 5pc to 10pc deposits.
However, the evidence suggests the scheme has so far failed buyers.
In 2022, the mortgage guarantee scheme’s first year of operation, just over 20,000 home loans were supported. In 2023, this number fell to just 7,487, and in the first three months of 2024, just 1,618 first-time buyers benefited from the scheme.
Neil Jefferson, chief executive at trade body the Home Builders Federation (HBF), said: “The mortgage guarantee scheme has had limited impact and is not being used by lenders to support buyers of new homes, and as a result the underlying demand from first time buyers for new homes is not being realised.”
Experts said the key reason for the scheme’s unpopularity was the cost to lenders. Banks and building societies faced a government charge each time they insured a borrower, leading many to introduce their own 95pc mortgage products instead.
The number of in house 95pc loan-to-value mortgage products available rose to its highest level in two years in September, according to industry analyst Moneyfacts.
David Hollingworth, of broker L&C Mortgages, said: “We now have a strong range of deals for those with a small deposit so the need for the guarantee scheme has reduced. Many lenders have decided to go it alone and don’t rely on the guarantee scheme which is why uptake is relatively low.”
Torrin Wilkins, of think tank Centre, added: “The mortgage guarantee scheme also lacks some of the features that made the Help to Buy scheme popular, such as the ability to purchase a newly built property.”
Experts have warned that the Government needs to go much further in its support for first-time buyers if it is serious about helping them.
Mr Jefferson of the HBF said: “If we are to achieve the Prime Minister’s ambitious target of 1.5 million homes, further bold action is required. It is the first time in decades that there is no effective support in place for home ownership, and with very few younger households able to find mortgages housebuilders cannot invest with confidence.”
The HBF has advocated for a return of the Help to Buy scheme, which saw first-time buyers offered a Government loan of up to 40pc of the value of a home. But experts have warned that it would require significant reform to have a meaningful impact on first-time buyers.
Critics of Help to Buy have argued that it was targeted too broadly – up to 63pc of people that used the scheme did not need to do so, according to a 2019 report from spending watchdog National Audit Office (NAO).
By charging buyers interest of 1.75pc plus inflation, experts said that some borrowers were put under financial strain by the scheme.
Karen Noye, mortgage expert at financial advice firm Quilter, said: “The Help to Buy equity loan scheme’s impact was not uniformly positive. Its design allowed the Government to gain a share of the property’s appreciation, meaning as house prices increased, so too did the Government’s profit.
“This became a particularly burdensome aspect for homeowners when they reached the end of their five-year interest-free loan period. With the interest rate initially set at 1.75pc and then increasing annually based on inflation, many homeowners faced escalating costs, adding financial strain to what was initially intended as an assistance program.”
Labour has continued to back the shared ownership scheme. The policy allows buyers to purchase a share of a property – between 10pc and 75pc – in exchange for a smaller deposit and home loan.
But this scheme is also not without its problems. A report published earlier this year by the Levelling Up, Housing and Communities (LUHC) Committee, MPs said it was “drastically failing” to help buyers achieve full home ownership due to rising rents, uncapped service charges and unfair repair costs.
The party has also confirmed that the tax-free stamp duty threshold for first-time buyers will fall from £425,000 to £300,000 from April, meaning a buyer purchasing a home worth £425,000 will soon be forced to pay an additional £6,250 in tax.
Adrian Anderson, of mortgage broker Anderson Harris, told The Telegraph: “Stamp duty is painful and extremely unpopular, especially for first-time buyers who already have to stretch themselves as much as they can to afford a deposit, as house prices are high relative to incomes.”
The Treasury said it was committed to the mortgage guarantee scheme.
A spokesman said: “After years of economic instability, the failure to build enough houses and a mini budget that saw mortgages soaring, the dream of home ownership is out of reach for too many people. That’s why this government will build 1.5 million homes and deliver the biggest increase in affordable house building in a generation.
“This includes giving first-time buyers the opportunity to buy new homes, and we will introduce a permanent, comprehensive mortgage guarantee scheme to support those who struggle to save for a large deposit.”
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