Chancellor Rachel Reeves will unveil a new permanent mortgage guarantee scheme next week aimed at helping first-time buyers secure home loans with as little as a 5% deposit—even during economic downturns.

Branded as Freedom to Buy, the initiative is designed to stabilise access to high loan-to-value (LTV) mortgages, especially when traditional lenders might otherwise restrict such offers. Reeves is expected to confirm the move during her first Mansion House speech as Chancellor on Monday, 15 July.

This policy delivers on Labour’s manifesto pledge and builds on the Conservatives’ earlier scheme, which was introduced during the Covid-19 pandemic but expired at the end of June 2024.

How the Scheme Works

• The government will guarantee mortgages up to 95% LTV, covering potential losses in the event of repossession.

• Lenders must pay a fee to the Treasury to access the guarantee, similar to an insurance premium.

• The maximum contingent liability is capped at £3.2 billion—matching the level set by the previous Conservative government.

City Minister Emma Reynolds confirmed the risk to taxpayers is judged to be “low,” as fees are intended to cover any financial exposure. The scheme will be permanently available, removing the uncertainty created by the temporary nature of previous schemes.

Aims and Impact

The permanent guarantee is designed to:

• Maintain access to 95% mortgages across the economic cycle, not just in good times.

• Reassure lenders that government support will remain consistent, encouraging them to keep offering high LTV loans.

• Support homeownership among younger buyers and those without family financial backing.

Paul Broadhead of the Building Societies Association welcomed the announcement, noting that long-term certainty will give lenders more confidence. However, he stressed that this must be matched by increases in housing supply to avoid fuelling demand without boosting availability.

Pete Dockar, Chief Commercial Officer at Generation Home, said the scheme will “smooth the cycle,” helping to ensure that mortgage access isn’t cut off during downturns. He welcomed the sense of security it could offer smaller lenders.

Criticism and Caution

Not all voices are enthusiastic. Mortgage broker Martin Stewart of London Money criticised the policy as “pointless,” arguing that lenders will still exercise caution regardless of government backing.

He suggested that while it might slightly increase product availability, it does not address the core challenges facing first-time buyers, such as high house prices, limited stock, and affordability tests.

Broader Economic Reform

Reeves is expected to use her Mansion House address to announce additional economic measures, including reforms to ISAs, encouraging savers to shift from cash into stocks and shares for better long-term returns.

What This Means for the Housing Sector

• Agents and developers may see a boost in first-time buyer interest.

• Landlords selling to tenants might find more deals achievable under the scheme.

• Housebuilders may use this as leverage to accelerate planning approvals and completions.

However, without a supply-side intervention, some warn that increased buyer demand could simply drive up prices, unless more homes are delivered into the market.