Labour promises 5% deposit mortgages

Labour Leader Keir Starmer today unveiled the 'Freedom to Buy' scheme, a potential game-changer for first-time buyers. But what exactly is it, and how could it potentially benefit those looking to step onto the property ladder?

The Scheme already exists and has been in operation since 2021, when 5% of deposits disappeared post-pandemic, called "The Mortgage Guarantee Scheme". The Conservative Party scheme was due to end in 2025, but the Labour plan is to make it permanent.

The scheme will make taxpayers guarantors for borrowers unable to save up extensive deposits. The British public will cover some of the costs if a home is repossessed, which gives banks confidence to lend to higher-risk, low-deposit borrowers.

Labour pledged to help 80,000 young people, nearly double the 42,836 households the scheme helped in the two years and seven months the scheme has been running.

With over 19 Mortgage Lenders with 95% LTV Mortgages in the market and special offerings such as Accords £5k Deposit Mortgage, some may question the 'Freedom to Buy' scheme's need to be permanent.

Mortgage Experts, say..

Speaking to the Newspage news agency, Mortgage Specialists said

• "This policy is about as useful as a chocolate teapot" Lewis Shaw, Shaw Financial Services
• "Yet another scheme with no real substance. The existing mortgage guarantee offering has had limited take-up, and this will be no different," Katy Eanten.
• "Freedom to Buy looks great on the first read, but then you realise it’s actually been in place since 2021 and many lenders don’t use it anyway." Justin Moy, EHF Mortgages
• "The Mortgage Guarantee scheme has become almost obsolete with standard 5% deposit mortgages available" Stephen Perkins, Yellow Brick Mortgages

My view is that it's fine; every little helps first-time buyers and this is very little. The deposit is just one part of the puzzle. The reason for the scheme's low initial take-up is affordability. With the scheme currently being used on house prices worth £202,713, a homeowner must demonstrate that they can afford a £192,577 mortgage at today's 95% LTV rates of 5%- 7%. That's not easy to do.

Unless there are unannounced changes, I can not see the scheme reaching 80k people when it's taken nearly 3 years to reach 42k.