Jeremy Hunt is drawing up a package of support to help first-time buyers get on to the property ladder ahead of the autumn statement next month.
Options being considered include extending the government’s mortgage guarantee scheme and creating a new type of individual savings account (Isa) targeted at people looking to build up a deposit to buy their first home.
It comes amid growing concern that thousands of first-time buyers, as well as homeowners whose cheap fixed-rate mortgage deals are set to expire, will struggle with affordability checks should rates remain high throughout next year.
The Bank of England’s interest rate is 5.25 per cent at present, compared with a historic low of 0.1 per cent from March 2020 until December 2021.
As part of the package, it is understood the chancellor is planning to extend the government’s 95 per cent mortgage guarantee scheme, which enables prospective homeowners to buy a property worth up to £600,000 with only a 5 per cent deposit.
Advertisement
The scheme was first introduced in March 2021 by Rishi Sunak, then chancellor, as a means of stimulating the housing market during the Covid-19 pandemic.
At the time, many mortgage lenders pulled deals which only required buyers to provide a smaller deposit. Sunak’s guarantee scheme encouraged lenders to reinstate these deals by underwriting part of the risk.
The scheme had been due to end in December but Hunt is now expected to announce a 12-month extension in the autumn statement on November 22.
The Treasury is also looking at options for a new type of Isa to incentivise people to save to buy their first home. The tax-free wrappers enable people to hold savings and investments without paying tax on interest or capital gains. These include cash Isas and stocks and shares Isas.
Changes to existing products have also been floated, with officials looking at lifting the property price cap on a number of existing Isas to reflect significant increases in house prices since the schemes were introduced.
Advertisement
In recent years, prospective homeowners have been able to claim a 25 per cent government bonus on savings they paid into a number of Isa products, including the Lifetime and Help to Buy Isas. The Help to Buy scheme has faced criticism because it can only be used towards properties purchased for up to £250,000, or up to £450,000 in London. With a Lifetime Isa, the limit is £450,000. While the average property price in Britain is £278,600, it is far higher in many parts of the country, according to the Halifax’s house price index.
Hunt is therefore looking at proposals to raise the cap, which would make the schemes more viable for people buying homes in London and the southeast.
Downing Street and Treasury officials are understood to have been looking at proposals for a first-time buyer support package since the Help to Buy scheme ended in March this year.
Launched by George Osborne in 2013, Help to Buy was billed as the biggest government intervention in the housing market since Margaret Thatcher introduced Right to Buy in the 1980s.
Successive Conservative administrations have rolled out various Help to Buy schemes. The most recent, which ran between 2021 and 2023, allowed homebuyers to borrow a 20 per cent government equity loan, meaning they only needed a 5 per cent deposit. More than 370,000 loans worth £23 billion have been issued over the past decade.
Advertisement
However, critics have argued that the scheme has inflated house prices and that the money would have been better spent on increasing housing supply.
Sources said the Treasury had ruled out a revival of the scheme because it could prove inflationary. Hunt has warned against pumping money into the economy when the government’s primary goal is to reduce inflation.
The news came amid claims that senior Conservatives believe the chancellor will stand down as an MP to avoid a “Portillo moment”, according to reports in the Observer. In 1997 Michael Portillo, who had been defence secretary, lost his seat as Labour swept to a landslide general election victory. A spokesman for the chancellor denied the claim, saying: “Jeremy Hunt will stand as the Conservative Party candidate for Godalming & Ash at the next general election.”
