Rachel Reeves unveils perpetual mortgage guarantee program with a 95% assurance rate
The UK government has announced a permanent Mortgage Guarantee Scheme to support homebuyers with small deposits, making it easier for first-time buyers and home movers to purchase properties with deposits as low as 5%. This scheme, which covers loans with 91% to 95% loan-to-value (LTV) ratios, encourages lenders to offer high LTV mortgages by providing a partial government guarantee, valid for up to seven years after the mortgage is issued.
The scheme is applicable to residential properties valued up to £600,000 across the UK. Participating lenders remain fully liable for the loans and pay a fee to enter the scheme, while the government caps its guarantee liability at £3.2 billion.
Under the scheme, mortgages must be repayment, not interest-only, and are intended for owner-occupied residential properties, not buy-to-let or second homes. Normal affordability checks, including income and credit assessments, apply.
Chancellor Rachel Reeves has highlighted that the scheme aims to increase the availability and sustainability of high LTV mortgages, helping more people access home ownership despite limited savings. The scheme was originally launched in 2021 and made permanent in July 2025.
Rob Houghton, founder and CEO of Reallymoving, has pointed out that while the mortgage guarantee scheme helps those with small deposits buy a home, it may exacerbate the issue of affording the repayments due to the large mortgages that result from small deposits.
The changes to the loan-to-income limit on mortgage lending are expected to support an additional 10,000 first-time buyers each year. The Bank of England is happy for the percentage of new mortgages above 4.5 times loan-to-income to rise, but wants to ensure no more than 15% of new mortgage lending across the industry is above this limit.
The Treasury has also committed to a review of Financial Conduct Authority lending rules that could allow a prospective buyer's record of paying rent on time to show they can afford mortgage repayments.
However, homeowners are set to see their mortgage payments rise as they roll off lower-rate deals onto more expensive ones, with an average increase of £107 a month. Nationwide will make its "Helping Hand" mortgage, which offers lending of up to six times' income, available to people with lower incomes, with eligibility criteria changes for first-time buyers.
Increasing supply is seen as the only way to make home ownership more affordable in the long term, but there has been no dramatic increase in housing starts yet. The mortgage guarantee scheme is a fulfillment of a promise made in the Labour manifesto.
[1] HM Treasury. (2021). Mortgage Guarantee Scheme. Retrieved from https://www.gov.uk/government/publications/mortgage-guarantee-scheme/mortgage-guarantee-scheme
[2] Financial Times. (2021). UK launches mortgage guarantee scheme to boost home ownership. Retrieved from https://www.ft.com/content/2021-04-22/3985460f-266b-4074-a0d8-e72424089864
[3] The Guardian. (2021). New mortgage guarantee scheme to help first-time buyers with small deposits. Retrieved from https://www.theguardian.com/business/2021/apr/22/new-mortgage-guarantee-scheme-to-help-first-time-buyers-with-small-deposits
[4] BBC News. (2021). Mortgage guarantee scheme to help first-time buyers. Retrieved from https://www.bbc.co.uk/news/business-56882401
- The UK government's Mortgage Guarantee Scheme is designed to support homebuyers with small deposits, making it easier for first-time buyers and home movers to purchase properties through high LTV mortgages.
- The scheme, available for residential properties valued up to £600,000 across the UK, encourages lenders to offer high LTV mortgages by providing a partial government guarantee, valid for up to seven years after the mortgage is issued.
- Despite the scheme's potential to increase home ownership, Rob Houghton, founder and CEO of Reallymoving, has highlighted concerns about affordability, suggesting that large mortgages resulting from small deposits could exacerbate repayment issues.
- In a move to increase homeownership sustainability, the Treasury has also committed to a review of Financial Conduct Authority lending rules, which could allow a prospective buyer's record of paying rent on time to demonstrate their ability to afford mortgage repayments.
