UK Mortgage Guarantee Scheme Set to End Without Replacement

The UK government’s mortgage guarantee scheme, designed to help buyers with small deposits enter the property market, is coming to an end this month. Launched in April 2021, the scheme allows banks to purchase a government guarantee on the portion of a mortgage that covers 80% to 95% of a property’s value, providing lenders more confidence in offering high loan-to-value mortgages.

Since its introduction, the scheme has supported over 53,000 completed mortgages, with 86% of these taken up by first-time buyers. The average property value for those supported through the scheme has been £211,000. By December 2024, the total value of guarantees provided by the initiative stood at £1.6 billion, with the overall value of mortgages supported reaching £10.7 billion.

If a borrower under the scheme encounters financial difficulties and their property is repossessed, the government covers the guaranteed portion of the lender’s loss. While not all lenders offering 95% mortgages opted to use the scheme, it has played a significant role in enabling people to step onto the housing ladder, particularly younger buyers and those with smaller deposits.

The government announced in February that the existing guarantee scheme would be replaced by a permanent and comprehensive option aimed at continuing support for low-deposit mortgages. However, at the time of writing, no detailed information about the replacement programme has been released. This leaves borrowers and lenders uncertain about the future of such high loan-to-value mortgage offerings.

Ministers had expressed hopes that making the scheme permanent would encourage banks and building societies to sustain low-deposit mortgage products long-term. With the current scheme set to stop supporting new loans after 30 June, prospective buyers eagerly await further clarity.

The end of the scheme marks a critical juncture in the UK housing market, especially at a time when first-time buyers face heightened challenges due to rising property prices and increasing living costs.