Labour made several key plays to attract the votes of prospective first-time buyers during the 2024 general election.
Sir Keir Starmer’s ‘Change’ manifesto pledged to reform the planning system and said it would resurrect the 300,000 a year housebuilding target. The document also promised to bring in major changes to the letting and leaseholding sectors.
One of its more eye-catching proposals was the Freedom to Buy scheme. It was launched to big fanfare on the campaign trail and promised to get 80,000 young people onto the housing ladder. But the policy has been cast into doubt by the fact that it didn’t get a specific mention in the King’s Speech. MoneyWeek has asked the government to clarify whether it intends to implement the policy, but has received no response.
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It comes as Rachel Reeves is preparing to make the first Labour Budget speech since 2010. The Chancellor of the Exchequer has already hinted that tax hikes could be on the way due to what her party claims was an unforeseen black hole in the public finances. She has already scrapped Winter Fuel Payments for most pensioners - although pressure is mounting on Labour to reverse this decision.
So, what is Freedom to Buy, when can we expect it to come into being - and who could benefit from it?
What is the Freedom to Buy scheme?
Freedom to Buy is essentially a version of the Mortgage Guarantee Scheme that was launched by the Conservative government in April 2021. Its aim is to get more young people onto the UK housing ladder - something that has become increasingly challenging in recent decades due to soaring house prices.
At its heart, the idea is that the government acts as a guarantor for people who can’t afford a large deposit. With the state taking on the bulk of the risk, the hope is that lenders would offer a larger number of high loan-to-value (LTV) mortgages.
In theory, it means that cash-strapped buyers would be able to secure a home with a smaller deposit of around 5% instead of the customary 10%. It could mean these buyers save tens of thousands of pounds on what they have to pay upfront for a property.
How does Freedom to Buy differ from the Mortgage Guarantee Scheme?
The current Mortgage Guarantee Scheme aims to temporarily support the lending market to offer 95% mortgages on properties costing up to £600,000. It gives lenders the option to buy a guarantee from the government that covers these riskier loans for up to seven years. Should the mortgage payer default, this insurance policy would compensate the lender for up to 80% of the purchase value of the property in question.
Labour claims its Freedom to Buy policy will be more comprehensive than the existing scheme. But it has not provided many details for exactly how its version will differ.
What we do know is that it will be a permanent scheme, whereas the one launched by then-Chancellor Rishi Sunak was only ever intended to be temporary. Indeed, the Conservatives repeatedly renewed the scheme as its deadline approached, with the next deadline coming in June 2025.
The current party of government argues that the temporary nature of the existing scheme restricts the number of 95% mortgages on the market. It says constant uncertainty over whether the scheme would be renewed has meant lenders have not fully integrated high-LTV mortgages into their product ranges, while buyers have been left unable to include it in their home-buying plans.
The figures suggest that this analysis could be correct. According to Moneyfacts, while the number of 95% LTV mortgage products has doubled over the past year, these loans only make up around 5% of the overall number of residential mortgage products on the market.
By making the scheme permanent, as well as rebranding and remarketing the scheme under the Freedom to Buy banner, the government hopes to boost the low-deposit mortgage market. It says its plan will incentivise lenders to make these loans a key part of their offerings, and increase awareness among prospective buyers of what support’s open to them.
The Labour Party has set itself an ambitious target of getting 80,000 young people onto the housing ladder through the scheme over its five-year term in office. It has pointed to the success seen in countries that have adopted similar schemes, such as Australia and Canada, where smaller deposit mortgages have become more readily available, the cost of them has become cheaper, and home ownership has grown as a result.
Who is eligible for Freedom to Buy?
Exactly who will be able to take advantage of Freedom to Buy remains to be seen. When it was announced, Labour suggested it would solely be open to first-time buyers. The current system is open to current homeowners, as well as first-timers.
MoneyWeek will provide updates on exactly how the scheme will work as soon as more information becomes available.
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