Labor has promised to make the Mortgage Guarantee Scheme (MGS), which improves the availability of low deposit offers, permanent if it wins the general election.
The schedule was introduced in 2021 by the Conservatives to increase the number of 5% deposit mortgages for first time buyers (FTBs) at a time when these were disappearing from the market.
A handful of major lenders now offer mortgages through the MGS, with the government providing a guarantee for some of the mortgages at a loan-to-value (LTV) of 95%. This reduces the risk for lenders and offers more options for home buyers with small deposits.
Although it was initially only a temporary measure, the Chancellor has extended the scheme until June 2025.
Now Labor has said that if elected to government it will make the plan permanent and rename it ‘Freedom to Buy’.
It believes this plan will help more than 80,000 young people onto the property ladder over the next five years.
There are mixed reactions from mortgage professionals about the freedom to buy.
Andrew Montlake, managing director at Coreco, said via the Newspage Agency: “This is a promising first offer from Labor and it is the permanent nature of the Freedom to Buy guarantee that could make the difference, rather than being held for a period of time. period availability. established time period.
“This can enable lenders to take a longer-term approach to their offering and ensure competitive products are continuously available to those who have lower deposits.
“While it won’t solve the long-term housing problems overnight, Labor has at least shown that they understand them and have already shown that they are willing to speak and engage with those in the frontline, which is more promising for the housing market as a whole, the next government should be a red government.”
But others were skeptical and concerned that Labour’s plan does not go far enough to tackle the housing crisis.
Kate Davies, executive director of the Intermediary Mortgage Lenders Association, said: “A 95% loan-to-value mortgage shortage is not the problem in the current market – there are currently more than 300 products available at this level.
She added: “It’s not a great plan from the lenders’ perspective because it’s expensive for them to use, and exclusive – signatories to the MGS are not allowed to combine it with 95% loans backed by their own, cheaper, private insurance schemes.
“Now there are well over 95% mortgages offered by a range of large and small lenders, financed without the government’s expensive scheme. But FTBs must still meet affordability requirements to secure these loans.
“And the higher loan-to-value headroom is further limited by the arbitrary ‘flow cap’ imposed by the Bank of England on mortgage providers lending more than £100 million a year. This limit prevents them from lending more than 15% of their home loans at more than 4.5 times the borrower’s income.”
Davies believed that a review of this current limit would be a more effective way of increasing the availability of higher mortgage value mortgages for FTBs than perpetuating the mortgage guarantee scheme.
“We would like to talk to policymakers from Labor – and from other parties – to explain this issue to them in more depth,” she added. “It is in all our interests to improve the position of starters.”