Doubts raised over prospects for Labour’s first-time buyer scheme

Fewer than 50,000 mortgages have been completed with the support of the Mortgage Guarantee Scheme, official figures show.

The scheme was launched by the previous Tory Government in April 2021, providing state-support for high loan-to-value loans, but new data shows it has supported just 44,368 mortgages worth £8.5bn as of March 2024.

Of these, 86% were first-time buyers.

Most borrowers under the scheme are in the Noth West, South East and Scotland, with a lower proportion in London and Northern Ireland.

It comes as doubts are being cast on the Labour Government’s plans for a Freedom to Buy mortgage guarantee scheme.

Analysis by Quilter has revealed the number of people between the ages of 18 and 30 securing a mortgage each year has risen relatively steadily in the last decade, reaching 350,092 in 2023 compared to 252,558 in 2014. 

However, this number has been trending downwards since a spike of 401,665 in 2021 which aligned with the Stamp Duty holiday introduced during the pandemic, resulting in a 13% fall in just two years.

Given mortgage rates and house prices are now much higher than a decade ago, which has piled pressure on affordability, prospective first time buyers are having a much tougher time securing a mortgage, Quilter warns.

Charlotte Nixon, mortgage expert at Quilter, said: “While it is certainly a good thing that more young people have been able secure a mortgage over the past decade, it appears the number may now be falling. This will in part be down to the lack of support on offer for first time buyers, which has only been exacerbated by high mortgage rates, the pace of house price growth and the difficulty faced in saving a deposit.

“Given the current economic circumstances, young people’s finances are already incredibly stretched, so saving a deposit for a first home has been made all the more challenging.

However, a high loan to value mortgage such as those that would be encouraged by Labour’s ‘Freedom to Buy’ scheme is simply not the answer. Such a scheme would not address the fundamental issue of high property prices relative to average incomes, which has been evidenced by the considerable lack of take up thus far. 

“Not only have very few people made use of the scheme currently on offer, but with house prices still at risk of fluctuating, those that do could be at risk of negative equity. Having such a low deposit amount would leave people with little to no wiggle room in terms of house price changes before falling into what can be an extremely difficult situation to get back out of.

“In the first instance, it will be imperative that Labour follows through on its commitment to increase housing supply, but even so this is unlikely to be enough to help those at the bottom of the chain. The dawn of a new government provides the perfect opportunity to reassess the options currently available, as well as to invest time into consulting and planning to ensure that any new schemes brought to the table are as effective as possible.”