The government-backed scheme to ensure 95% mortgages remain widely available will now run until December 2023.

The Mortgage Guarantee Scheme is being extended by a year to help more people with a 5% deposit to buy a home.

The government-backed scheme had been due to close at the end of 2022, but it will now run until 31 December 2023.

It has already helped more than 24,000 households to purchase a property, 85% of which were first-time buyers.

Chief Secretary to the Treasury, John Glen, said: “Extending this scheme means thousands more have the chance to benefit, and it supports the market as we navigate through these difficult times.”

Before the announcement was made, commentators had expressed concern that the end of the scheme would make it difficult for people with only a small deposit to get a mortgage, particularly as house prices in some areas are falling.

A number of lenders had recently withdrawn their mortgages for people borrowing 95% of their home’s value. But news that the scheme is being extended should boost the supply of these loans.

How does the scheme work?

The scheme encourages lenders to offer 95% mortgages by having the government guarantee the portion of the loan over 80%.

This means that if the borrower defaults on the mortgage, the government will cover up to 15% of the shortfall.

The scheme can be used by both first-time buyers and those trading up the property ladder on homes worth up to £600,000.

It can be used to purchase an existing or a new-build property, but the home must be bought with a repayment mortgage, not an interest-only one.

The Mortgage Guarantee Scheme was launched in April 2021, after lenders withdrew mortgages for people with small deposits in the face of the Covid-19 pandemic, leaving just eight 95% mortgages available on the market.

What other help is available to first-time buyers?

There are a number of government schemes to help people get on to the property ladder.

First Homes helps first-time buyers, key workers and local people to purchase a home at a 30% discount to its market price, while Shared Ownership enables people to buy a share in a property and pay rent on the rest.

First-time buyers saving for a deposit can also use the Lifetime ISA, under which you can save £4,000 a year. The government then adds a 25% bonus – up to a maximum of £1,000 annually – for free. The money must be used to either purchase a first home or for retirement.

The government has also increased the threshold at which stamp duty kicks in for first-time buyers from £300,000 to £425,000 on homes costing up to £625,000 until April 2025.

Lenders to offer mortgages on flats in high-rise buildings

There was also good news for people who own flats in high-rise buildings with cladding.

Six lenders have announced they will start accepting mortgage applications from people who live in buildings in England that are over five storeys high, or 11 metres tall, and have cladding from early next year.

The move follows new guidance from the Royal Institution of Chartered Surveyors to enable valuations on properties impacted by cladding.

But lenders will still want to see evidence that dangerous cladding will be removed, either by the building’s developer or through a government scheme.

The lenders who will consider mortgage applications from people in high-rise buildings with cladding are Barclays Bank, HSBC, Lloyds Banking Group, Nationwide Building Society, NatWest and Santander.


Key takeaways

  • The Mortgage Guarantee Scheme is being extended until 31 December 2023
  • The scheme helps first-time buyers and home-movers with just a 5% deposit buy a home
  • It has already helped more than 24,000 households purchase a property, 85% of which were first-time buyers