Work to make the mortgage guarantee scheme permanent for first-time buyers

Labor has announced plans to permanently extend the mortgage guarantee scheme, initially introduced by the Conservatives in 2021 under then-Chancellor Rishi Sunak, if they win the upcoming general election.

The scheme, designed to support low-deposit mortgages for first-time buyers, was recently extended by current Chancellor Jeremy Hunt until July next year.

Labor leader Sir Keir Starmer highlighted his commitment to making home ownership more accessible, expressing his ambition to “make the dream of owning a home a reality.” The scheme involves the government guaranteeing part of a home loan, encouraging lenders to offer low deposit deals. Labor claims the initiative, branded ‘Freedom to Buy’, will help more than 80,000 young people onto the property ladder within the next five years.

However, the latest statistics from the Office for National Statistics show that in 2022, around 40% of the 16.5 million people aged 15 to 34 in Britain were living with their parents, equating to around 6.7 million individuals. This underlines the significant challenges many young people face in securing their own homes.

Labor argues that making the mortgage guarantee scheme permanent will prevent young people from being “locked out of home ownership” due to difficult conditions in the private rental sector and difficulties in saving for a deposit. Starmer highlighted the importance of this initiative by reflecting on his own family’s experiences, saying: ‘My parents’ home gave them security and was a foundation for our family. As Prime Minister, I will make the dream of owning my own home a reality.”

The existing scheme allows lenders to buy a guarantee on some of the mortgages, meaning the government can compensate for certain losses if a bank forecloses on a house. This program aims to increase lenders’ willingness to offer high Loan-to-Value mortgages, thereby reducing the deposit burden for buyers.

However, mortgage brokers point out that borrowers will still need to pass affordability checks to secure a mortgage, not just pay a deposit. Lenders typically require sufficient regular income to ensure borrowers can manage mortgage repayments, meaning the scheme can act as a safety net rather than a over-used tool.

As well as making the mortgage guarantee scheme permanent, Labor has pledged to reintroduce housing targets, speed up planning permission for brownfield sites and prioritize building on ‘grey belt’ land. These measures, Labor claims, could facilitate the construction of 1.5 million homes.

David Sturrock, a senior research economist at the Institute for Fiscal Studies, noted that declining home ownership rates since the 2000s mean that young adults are now a third less likely to own a home compared to 25 years ago. He acknowledged that making the mortgage guarantee scheme permanent could help reduce barriers to home ownership, but stressed that potential buyers also need sufficient income to afford mortgage repayments.

In response, the Conservative Party has highlighted its “Family Home Tax Guarantee”, which promises not to increase the number of council tax bands, revalue council tax, reduce council tax rebates or increase stamp duty.

Laura Trott, Principal Secretary to the Treasury, said: “Only Rishi Sunak and the Conservatives have a clear plan, backed by bold action, to strengthen the economy, cut mortgage costs and help more people into the housing market.”

Meanwhile, the SNP candidate for Airdrie and Shotts, Anum Qaisar, criticized Westminster’s handling of the economy, arguing that Scottish households are being “punished by Westminster’s failures” and highlighting the high cost of mortgages and energy bills.

The Liberal Democrats also joined in, pledging to prioritize the needs of the community over the interests of developers and to promote truly affordable housing options for first-time buyers.