Will the 95 per cent mortgage government scheme help first-time buyers?

last updated 3 June 2022

The government's 95 per cent mortgage guarantee scheme, launched in March, is meant to help a generation of renters become homeowners. Will this actually happen, and what are the potential implications of this scheme for the UK housing sector? Leading property experts are not all convinced it will do what it says on the tin.

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'The mortgage ''guarantee'' means nothing to you'

Martin Lewis, of Money Saving Expert fame, has been one of the most vocal sceptics ever since the mortgage guarantee scheme was announced. He takes umbrage both with the idea that it's good for first-time buyers and – especially – the word 'guarantee'. It can mislead would-be property owners into believing that a mortgage is somehow guaranteed to a first-time buyer by participating lenders.

Speaking on This Morning, Lewis said he suspected that there was a bit of 'marketing hype' weaved into the 'guarantee' name. 'The lenders who are offering it, and that includes big names like Barclays, HSBC, Lloyds, NatWest and Halifax, are often putting in their marketing "this is a mortgage guarantee scheme!" as if that actually means something for you. Let me be very plain, it means nothing to you.'

white wall with glass window and brown door

Lewis is referring to the fact that the mortgages under the scheme are approved in exactly the same way as all other mortgages. The affordability criteria are the same, and many people will not pass the affordability tests simply because they don't earn enough, even if they do have a five-per-cent deposit saved up that would cover an average property in their area.

In fact, according to recent research by The Guardian, single buyers in their 30s who are on the UK median wage will still be unable to afford homes in about half of the local authority areas in England and Wales. That's even if they applied for a 95 per cent mortgage.

Will the 95 percent mortgage scheme make house prices go up?

The even more disturbing question is whether prices will rise even further as a direct consequence of the scheme. As Sara Williams writes in her Debt Camel blog, 'there were no measures in the budget to increase the supply of houses in general or of “affordable homes”. So more people will be competing to buy the same number of houses… As a result it is likely that house prices will rise.'

What this will mean in practice is that people trying to buy even two, three years from now, will be looking at even larger deposit requirements, larger and longer mortgages, and a bigger chance of negative equity in the longer run. As Williams emphasises, 'house price rises benefit people who already own property and especially older people who do not need to move to a larger house. They don’t help first-time buyers at all!'

Both Lewis and Williams also stress that if a first-time buyer can at all stretch to even 10 per cent, they should definitely do so. A 95 per cent mortgage may help get some people on the property ladder, but it will always come with a worse rate than lower-LTV (loan-to-value ratio) mortgages.

Anna Cottrell is Consumer Editor across Future's home brands. She moved to the world of interiors from academic research in the field of English Literature and photography. She is the author of London Writing of the 1930s and has a passion for contemporary home decor and gardening.