Relaxing stress tests and changing loan-to-income thresholds are further ways the Government is looking to help more people get onto the property ladder.
The Government is honouring its manifesto commitment to support first-time buyers by confirming the implementation of a new, permanent Mortgage Guarantee Scheme.
A temporary precursor was introduced in April 2021 in response to risk-averse lenders pulling higher loan-to-value (LTV) deals from the market during the COVID-19 pandemic. It sought to improve the supply of mortgages available to those with smaller deposits by offering lenders a guarantee that the Government would cover some of the costs if a borrower defaulted.
Despite ending on 30 June 2025, there are still many obstacles preventing would-be borrowers from getting on the property ladder which justify the need for a more permanent solution.
“First-time buyers are the lifeblood of the mortgage market, and they have been facing an excruciating situation to afford a mortgage, amid a short supply of affordable housing,” said Rachel Springall, Finance Expert at Moneyfactscompare.co.uk.
Indeed, Matthew Pennycook, Minister of State for Housing and Planning, earlier this year recognised “that we now have a generation lock out of homeownership” – a situation he stated the Government is “determined to change”.
In a statement made last month, Emma Reynolds, the Economic Secretary to the Treasury, said a permanent scheme would “help to incentivise and sustain availability of 91%-95% loan-to-value mortgages … by providing lenders with a Government-backed guarantee”.
Lenders will need to pay HM Treasury a fee for each deal entered into the scheme and, in exchange, the Government will cover some of the losses incurred if a borrower with a qualifying mortgage was unable to meet repayments. Mortgages offered as part of the scheme are available to first-time buyers and homemovers with deposits as small as 5%.
Reynolds added that HM Treasury perceives there is a ‘low’ risk of the scheme incurring losses but, nonetheless, there will be a £3.2 billion cap on the Government’s contingent liability.
In the Leeds Reforms and as part of her Mansion House speech yesterday, the Chancellor of the Exchequer, Rachel Reeves, reiterated that she welcomed changes to the loan-to-income (LTI) threshold which could help tens of thousands of people to get a mortgage. Recent moves made by the Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA) are expected to increase lending at over 4.5 times a buyer’s income.
Reeves singled out Nationwide BS’s ‘Helping Hand’ mortgage as an example of a product which enables first-time buyers to borrow up to six times’ their salary. From today (16 July), the lender is relaxing the criteria for this mortgage by making it available to borrowers with an annual salary of £30,000 (down from £35,000 previously).
Along with relaxing stress tests, the ongoing considerations about loan-to-income rules and the new permanent Mortgage Guarantee Scheme are “a great combination for first-time buyers struggling to afford a mortgage”, according to Springall.
However, she warned those considering taking out a mortgage with little equity that “disaster could strike if house prices were to plummet” and urged prospective borrowers to seek advice before entering any arrangement.
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