Rachel Reeves to announce permanent 95% mortgage guarantee scheme

Chancellor Rachel Reeves is expected to announce a government-backed permanent mortgage guarantee scheme in her Mansion House speech next week, for both home movers and first-time buyers.

Details of the mortgage guarantee scheme will be revealed in the chancellor’s Mansion House Speech on 15 July, according to a report in the FT. A spokesperson for the Treasury said they would not comment on speculation.

But Emma Reynolds, Economic Secretary to the Treasury, told parliament in June that “the government will be launching a new mortgage guarantee scheme in July 2025, delivering on our manifesto commitment to support homebuyers with smaller deposits across the UK”.

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The Labour Party committed to a ‘Freedom to Buy’ scheme during the 2024 general election campaign.

The scheme will be permanently available, according to Reynolds, “helping to incentivise and sustain availability of 91% to 95% loan-to-value mortgages through the economic cycle by providing lenders with a government-backed guarantee”.

What is Labour’s mortgage guarantee scheme?

Mortgages offered through the scheme will enable eligible first-time buyers and home movers to buy a home with a deposit as small as 5%.

Under the mortgage guarantee scheme, a government guarantee will insure lenders against a portion of their potential losses on those mortgages.

Guarantees issued under the new, permanent scheme will be valid for up to seven years after the mortgage is originated.

Participating lenders will pay HM Treasury a fee for each mortgage entered into the scheme. This will be set and regularly reviewed so that expected claims against the guarantee should be covered by revenue from the fee.

To limit the government’s exposure from the scheme, there will be a cap on the size of the government’s liability of £3.2 billion.

“HM Treasury judges the risk of incurring losses through the scheme to be low, which would only materialise if the sum of fees was not sufficient to cover calls on the guarantee,” said Reynolds.

HM Treasury has approved this proposal in principle, she added.

The scheme would replace a previous mortgage guarantee scheme set up by the previous Conservative government, which closed at the end of June.

Problems with the mortgage guarantee scheme

The government said the permanent mortgage guarantee scheme will help those with small deposits buy a home.

But Rob Houghton, founder and CEO of Reallymoving, a comparison site for home movers, said that is only half the problem.

“There are two main barriers to home ownership: firstly, the deposit, and secondly, affording the repayments. The problem with this scheme is it solves one but exacerbates the other, because buying with a 5% deposit leaves you with a 95% mortgage to service,” he said.

Increasing supply is the only way to make home ownership more affordable in the long term, he added, “and we’re yet to see any dramatic increase in housing starts”.