The Government's Help to Buy mortgage guarantee scheme - part of its flagship programme to boost home ownership – will close to new mortgages on 31 December 2016, it was announced today.
The mortgage guarantee helps lenders offer 5% deposit mortgages, with the Government taking on some of the risk if borrowers default. Over 86,000 households have used the guarantee to buy a home since its launch in 2013.
It had always been set to end in December, but some lenders had called for it to be renewed. It's now clear this won't happen, and those wishing to take out a mortgage under the scheme will need to do so by the end of 2016.
The Help to Buy ISA, which launched in December 2015, is NOT affected by this announcement and will continue to be available to new applicants until 2019. The equity loan scheme for new-build properties will also remain in place.
If you're confused about what this means for you, watch MoneySavingExpert.com founder Martin Lewis's video below - and for more help download our free First-Time Buyers' Mortgage Booklet.
Why is the mortgage guarantee scheme ending?
In a letter to Bank of England governor Mark Carney, the Chancellor, Philip Hammond, said the mortgage market had become less reliant on the Help to Buy mortgage guarantee, with over 30 lenders now offering mortgages worth 90-95% of a property's value independently of the scheme.
Hammond said this showed the guarantee scheme's "specific purpose" has now been "successfully achieved".
Martin says: "When this scheme ends, there won't actually be that much difference. You'll still be able to get a 5% deposit mortgage if you want one."
But he cautioned that such mortgages could cost buyers dear, adding: "They're really expensive. If you can do anything to push to get yourself to 10%, interest rates plummet at that point and everything becomes much cheaper."
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How does the mortgage guarantee scheme work?
The scheme's designed to help those with smaller deposits buy their own home - it can apply to any home worth less than £600,000 (or £300,000 in Wales).
It actually does very little for consumer directly though - instead, it gives lenders a guarantee so that they can offer 5% deposit mortgage but only take the risk as though they were offering a 20% deposit mortgage, with the Government backing the rest of it.
The Help to Buy mortgage guarantee is available on new-build and older homes, unlike the equity loan scheme, which is only for new-builds.
What are the other parts of the Help to Buy scheme?
The label 'Help to Buy' is given to a number of Government schemes aimed at helping people become homeowners. Aside from the mortgage guarantee, the main Help to Buy schemes include:
- Help to Buy ISA - First-time buyers can save up to £200 into the ISA every month and the state adds 25% on top, to help you build up a deposit. The minimum you need in to get the bonus is £1,600 (so a £400 bonus), and the maximum bonus is £3,000. These ISAs are expected to be open to new applicants until 2019 - see our Help to Buy ISAs guide for more.
- Equity loan - For those with a deposit of at least 5% buying a new-build home worth less than £600,000 (£300,000 in Wales). The Government lends you up to 20% of the property price, interest-free for the first five years. The loan allows you to access cheaper mortgage products, as you only need to borrow 75% of the value from the lender. This scheme only applies in England and Wales, and is set to run until 2021.
You can read more about the Help to Buy schemes and products in our Mortgage Schemes guide.