Rachel Reeves unveils perpetual 95% home loan assurance program
The UK's new permanent Mortgage Guarantee Scheme is set to launch in July 2025, aiming to provide a helping hand to homebuyers with smaller deposits. This scheme allows buyers to access mortgages with high loan-to-value (LTV) ratios, as low as 95%, reducing the size of the deposit needed.
Key details and purpose of the scheme are as follows:
- Support for First-Time Buyers and Home Movers: The scheme aims to improve access to homeownership for those struggling to raise large deposits.
- Property Value Limit: The scheme applies to properties valued up to £600,000.
- Government-Backed Guarantee: The mortgage guarantee gives lenders a partial government-backed guarantee. The government assumes a portion of any losses, capped at £3.2 billion, encouraging lenders to offer high LTV mortgages they might otherwise avoid.
- Commercial Fee: Lenders remain fully responsible for the loans, pay a commercial fee to participate, and the guarantee lasts for up to seven years after the mortgage is issued.
- Sustaining High LTV Mortgages: The scheme seeks to sustain the availability of high LTV mortgage products permanently, unlike previous temporary schemes.
Since the original version of the scheme launched in 2021, over 53,000 mortgages worth more than £10.7 billion have been completed under the scheme, representing about 1.4% of all residential mortgage completions in that period.
The scheme is expected to support an additional 10,000 first-time buyers each year. Eligible first-time buyers can apply for the mortgage with a £30,000 salary, down from £35,000, and joint applicants with a £50,000 combined salary - down from £55,000.
Currently, just under 10% of new mortgages issued exceed 4.5 times a borrower's income. The Bank of England is happy for this percentage to rise, but wants to ensure it doesn't exceed 15%.
Rob Houghton, founder and CEO of Reallymoving, has expressed concerns that while the scheme helps those with small deposits buy a home, it exacerbates the problem of affording the repayments. Houghton believes that increasing supply is the only way to make home ownership more affordable in the long term.
The mortgage guarantee scheme is part of the so-called Leeds Reforms announced by the Treasury. The government will provide participating lenders with a government-backed guarantee, insuring them against a portion of their potential losses on those mortgages.
However, homeowners face an average rise of £107 a month as their current deals end and roll onto more expensive ones. The Bank's report warns that millions of mortgage holders are set to see their payments rise.
[1] Source: Treasury announcement, July 2025 [3] Source: Nationwide announcement, June 2025 [5] Source: Bank of England report, June 2025
- The Mortgage Guarantee Scheme, launched in July 2025, aims to assist first-time buyers and home movers by offering high LTV mortgages, thereby improving access to property for those with smaller deposits in personal finance.
- To participate in the scheme, eligible first-time buyers can apply with a lower salary threshold of £30,000, down from £35,000, and joint applicants can do so with a £50,000 combined salary, a decrease from £55,000 - this scheme is set to sustain high LTV mortgages in business and personal-finance.
- As the scheme continues, concerns have been raised by experts like Rob Houghton, suggesting that the Mortgage Guarantee Scheme, although beneficial for those with small deposits, may lead to difficulties in managing mortgage repayments, emphasizing the need to increase property supply for long-term affordability in personal finance.
