The government is extending its mortgage guarantee scheme, which helps those with small deposits buy their first home, until December 2023.
The extension comes as analysts are predicting a slump in house prices next year due to higher mortgage rates, the rising cost of living and an impending recession.
The mortgage guarantee scheme was launched in April 2021 and was due to end this month. According to the Treasury, it has helped over 24,000 buyers get onto the property ladder.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
The scheme helps people with 5% deposits by providing lenders with the financial guarantees they need to provide mortgages that cover the other 95% of the price of a house worth up to £600,000. “Extending this scheme means thousands more have the chance to benefit and support the market as we navigate through these difficult times,” said John Glen, chief secretary to the Treasury.
Why is the mortgage guarantee scheme being extended?
Lenders tend to pull high loan-to-value (LTV) products from the market in turbulent times. The scheme was launched in the middle of the pandemic when the property market’s outlook seemed uncertain – in January 2021 there were just eight 95% LTV products available.
Many house price indices indicate the property market is cooling down following two years of rapid growth. Halifax expects house prices to fall 8% next year due to higher interest rates.
Rightmove’s house price index revealed a 2.1% dip in asking prices, their biggest drop in four years. The Office for Budget Responsibility is also predicting prices will fall 9% over the next two years.
This is due to a combination of things. The cost of borrowing has increased alongside interest rates, which the Bank of England has raised to 3.5% to control inflation.
A year ago mortgage rates were about 2%. In the aftermath of the mini-budget, they rose to a peak of 6.65%. They have since fallen to 5.99% and 5.78% for two-year and five-year fixed rates, but remain significantly higher and could be making buyers delay their plans as they wait for more favourable conditions.
On top of that, the cost of living is rising, driven by higher food and energy prices. That looks unlikely to ease soon – energy prices are due to go up by 20% in April as changes to the Energy Price Guarantee come into effect.
The government also introduced an extension to stamp duty cuts, but only until 2025. While the two schemes might help boost the market, it does seem like prices are headed back to their pre-pandemic levels.
-
Stop inheritance tax perk on pensions, says IFSThe government could raise billions of pounds in revenue by closing inheritance tax loopholes, such as on pensions and AIM shares. Is your pension at risk?
-
Revealed: Best buy-to-let property hotspots in the UKLooking for the best buy-to-let property locations in the UK? We reveal the top 10 postcodes with the strongest rental returns
-
Act now to bag NatWest-owned Ulster Bank's 5.2% easy access savings accountUlster Bank is offering savers the chance to earn 5.2% on their cash savings, but you need to act fast as easy access rates are falling. We have all the details
-
Moneybox raises market-leading cash ISA to 5%Savings and investing app MoneyBox has boosted the rate on its cash ISA again, hiking it from 4.75% to 5% making it one of top rates. We have all the details.
-
October NS&I Premium Bonds winners - check now to see what you wonNS&I Premium Bonds holders can check now to see if they have won a prize this month. We explain how to check your premium bonds
-
October’s NS&I Premium Bond winners revealed - have you scooped £1 million?Two lucky NS&I Premium Bond winners are now millionaires this October. Find out here you are one of them
-
The best packaged bank accountsAdvice Packaged bank accounts can offer great value with useful additional perks – but get it wrong and you could be out of pocket
-
Bank of Baroda closes doors to UK retail bankingAfter almost 70 years of operating in the UK, one of India’s largest bank is shutting up shop in the UK retail banking market. We explain everything you need to know if you have savings or a current account with Bank of Baroda
-
The best options to earn cashback on spendingFrom credit cards and current accounts to cashback websites, there are plenty of ways to earn cashback on the money you spend.
-
Should you retire abroad?Check the regulations governing pension savings carefully before you decide to retire abroad.
