95% mortgage guarantee scheme extended, 40,000 new homes to be built and Local Housing Allowance unfrozen to help renters on the lowest incomes.

There were no huge surprises for the housing market in today’s Autumn Statement.

Rumours of a stamp duty cut to kickstart the market did not come to fruition. But buried in the detail was news that the existing mortgage guarantee scheme would be extended.

The scheme was first introduced in 2021, with the aim of encouraging lenders to offer 95% loan-to-value (LTV) mortgages for buyers with a 5% deposit.

Mortgages issued under the scheme are backed by the Government, meaning if the buyer defaults, the Government will step in to cover some of the shortfall.

The scheme was due to end in December, but will now run until the end of June 2025, in a bid to continue to help prospective borrowers with smaller deposits buy a home.

Our expert’s view

Richard Donnell, Executive Director comments: ‘First-time buyers continue to be a key engine for the housing market – however they have to rely on the Bank of Mum and Dad.

‘Although first-time buyers get a lot of support through stamp duty relief, the big hurdles remain having the income needed to afford a mortgage alongside raising a deposit.

‘Extending the mortgage guarantee will help some buyers struggling to borrow for their first property.’

In the last two years since the scheme started in April 2021, it has been used to help 37,800 households, 86% of whom are first-time buyers.

This equates to around 5% of first-time buyers using a mortgage to buy a home between April 2021 and May 2023.

However, in comparison, the Help to Buy equity loan scheme was more generous – helping 387,200 buyers since it started a decade ago, 85% of which were first-time buyers. This scheme helped around 1 in 10 first-time buyers using a mortgage.

‘With this in mind, the key to the extension of the Mortgage Guarantee Scheme will be improving its affordability and appeal,’ said Donnell.

National living wage increased and National Insurance cut

The Chancellor also focused on boosting incomes for households, which in turn, could help to improve housing affordability.

An increase in the National Living Wage was unveiled, alongside a cut in National Insurance for both employees and self-employed individuals, helping to put more money back into the nation’s pockets.

This news will be welcomed by many as household budgets continue to be squeezed thanks to the ongoing cost-of-living crisis.

This, alongside high mortgage rates, have added further pressure for first-time buyers and home movers, causing property transaction levels and house prices to slump.

Inflation set to hit 2% target in 2025

Improving affordability is one way to help combat this, but with the Bank of England projecting inflation to fall to its target in the first half of 2025, mortgage rates could also fall faster than expected in 2024. If this happens, we could also start to see a rise in house sales.

‘The most important focus for the Government should be deploying policies that help support the reduction in borrowing costs for all buyer groups,’ says Donnell.

‘This needs to be supported by boosting housing supply through new house building and more support for affordable housing schemes to help those on all incomes.’

£110m to boost new homes supply

On house building planning applications, the Chancellor promised to invest more than £110 million this year and next to build 40,000 new homes and boost supply.

He also promised to invest £32 million to ‘bust the planning backlog’ and develop new housing in cities such as Cambridge, London and Leeds.

An additional £450 million will be allocated to the Local Authority Housing Fund to build around 2,400 new homes.

The Chancellor also announced plans to consult on a new permitted development right, enabling any home to be converted into two flats, so long as the exterior remains unaffected.

Local Housing Allowance rate unfrozen for lowest income renters

Finally, in rental news, the Local Housing Allowance rate, which affects how much help you get when renting from a private landlord, will be increased, having been frozen since 2020.

The increase should help families struggling to afford rising rents and will give 1.6 million households an average of £800 of support next year.

Key takeaways

  • Mortgage Guarantee Scheme extended until end of June 2025
  • £110 million to be invested in new home developments this year and next to build 40,000 new properties
  • Freeze on Local Housing Allowance Funds removed, giving 1.6 million households an average of £800 of support for their rental costs next year