Freedom to Buy mortgage scheme ‘not too much to get excited about’

| Marc da Silva
Rachel Reeves

Chancellor Rachel Reeves is expected to unveil the government’s much-anticipated Freedom to Buy mortgage scheme today – though concerns are already being raised over its effectiveness.

Reeves is due to announce the initiative during her Mansion House speech, positioning it as a rebranded successor to the existing Mortgage Guarantee Scheme.

The permanent government-backed mortgage guarantee scheme, a manifesto commitment of the Labour party, will allow lenders to offer mortgages at 95% loan-to-value (LTV), backed by government guarantees in case of repossession, with a view supporting first-time buyers onto the property ladder.

It is understood that the guarantee ceiling is £3.2bn in contingent liability, with fees paid by lenders intended to offset taxpayer risk.

However, the policy is not seen as sufficient to significantly improve affordability for first-time buyers in today’s challenging housing market.

Paula Higgins, chief executive, HomeOwners Alliance, said: “There’s not too much to get excited about here. The Mortgage Guarantee Scheme was originally launched to encourage lenders to offer 95% mortgages but lenders no longer need that nudge. Earlier this year, the number of 95% LTV mortgage deals hit nearly 400, the highest level in almost five years.

“Since the scheme operates entirely behind the scenes between lenders and government, we don’t expect first-time buyers will notice any difference. This feels more like a political gesture than a practical solution to the housing crisis.

“If the government really wants to support first-time buyers, it should turn its attention to fixing the Lifetime ISA. Right now, anyone forced to withdraw their savings early faces an unfair penalty — losing 6.25% of their own money. And the £450,000 property price cap hasn’t moved since LISAs launched in 2017, despite soaring house prices, particularly in the South East. Reforming LISAs would make a real, practical difference to those trying to get on the ladder.”

Anthony Codling, an analyst at RBC Capital Markets, last week commented: “It [the new mortgage guarantee scheme] is helpful, but history suggests that this is no housing demand silver bullet and will not move the needle in the housing stack.

“The issue is not the unavailability of 95% loan to value mortgages. The issue is that an increasing number of buyers do not have a big enough deposit [with a 4.5x loan-to-income loan]. In order to help first-time buyers the government is going need a bigger policy, in our view.”

“The issue is not the unavailability of 95% loan to value mortgages. The issue is that an increasing number of buyers do not have a big enough deposit [with a 4.5x loan-to-income loan]. In order to help first-time buyers the government is going need a bigger policy, in our view.”

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