The government scheme, introduced in March 2021, mainly helps first-time buyers with smaller 5% deposits to buy a home worth up to £600,000. The government gives a partial guarantee to the mortgage lender of up to 15 per cent if the borrower defaults on their repayments, which gives lenders the confidence to reintroduce these higher loan-to-value mortgages.
The mortgage guarantee scheme is only available to people buying a primary residence (a home to live in) with a repayment mortgage and does not apply to buy-to-let investments, or to people purchasing a holiday home or a second home.
Rightmove property expert Tim Bannister says: “Any support for those with the smallest deposits is always welcome, however in reality the scheme is only able to help a very small portion of movers. The proportion of mortgages that are taken out at the highest Loan-to-Value bracket is very small, with the majority of first-time buyers preferring to get the affordability benefits of saving for a bigger deposit.
“This in effect makes the scheme very limited, and movers, particularly first-time buyers, will have been hoping for more today.”
Research shows that 4.5 times income loans aren't adequate for first-time buyers at current property price levels
Furthermore, Nationwide Building Society director of mortgages and financial wellbeing Rachael Sinclair also says: “We welcome all measures that can play a role in helping people buy their first property, including the mortgage guarantee scheme extension but we are disappointed that it continues to restrict qualifying loans to 4.5 times income as research shows that most homes remain unaffordable through the scheme.
More needs to be done. That is why we continue to call on the government to commission an independent review into the first-time buyer market. This will provide much-needed clarity on issues that continue to hamper prospective homebuyers, such as the lack of new homes and the need for products that address the equally significant barriers of deposit and affordability.”
The reality of the extension of this scheme, therefore, does seem to have a negligible impact on a lot of buyers according to the experts.
So, what is happening with mortgages right now?
We have seen a lot of chat about further interest base rate rises and their impact on mortgage rates, the current Base Rate is 5.25% and has been held at this level since August. The Bank of England meet every 6 weeks to discuss, so it has been held stable for the last few months with some confidence returning and rate cuts appearing on mortgage products.
According to Rightmove mortgage expert Matt Smith: “Rate cuts have continued to gather pace this week, and we’ve seen falls across all loan-to-value ranges. Lenders appear keen to attract movers with smaller deposits, with the biggest weekly reduction of 0.17% being seen in the 95% loan-to-value bracket.
“In recent weeks, we’d seen the cheapest rates dip below 5% for movers with larger deposits, and the eagerly-awaited sub-5% rate has now arrived for the 90% LTV bracket: typically, where many first-time buyers will find themselves.”
The current average mortgage rate for a five-year fixed, 85% loan-to-value mortgage is 5.29%, down from 5.35% last week. The lowest rate for this type of mortgage is 4.77%.
https://www.rightmove.co.uk/news/articles/property-news/current-uk-mortgage-rates/, https://www.rightmove.co.uk/news/articles/property-news/autumn-statement-2023-mortgage-guarantee-scheme/, https://www.mortgagefinancegazette.com/market-news/muted-industry-welcome-for-mortgage-guarantee-scheme-extension-22-11-2023/