In a significant move aimed at improving the UK’s housing affordability, the government has launched a permanent Mortgage Guarantee Scheme from July 2025. This initiative is designed to support first-time buyers and home movers by enabling access to mortgages with deposits as low as 5%, backed by a government guarantee.

Key Features of the Scheme

  • Loan-to-Value Support: The scheme sustains the availability of 91–95% loan-to-value (LTV) mortgages, which are often difficult to secure without substantial deposits.
  • Government-Backed Guarantee: Participating lenders receive a guarantee from HM Treasury covering a portion of potential losses, encouraging them to offer low-deposit mortgages.
  • Seven-Year Guarantee Period: Each mortgage under the scheme is backed by a guarantee valid for up to seven years from origination.
  • Fee-Based Model: Lenders pay a fee to HM Treasury for each mortgage, which is reviewed regularly to ensure the scheme remains financially sustainable.
  • £3.2 Billion Liability Cap: To limit taxpayer exposure, the scheme includes a cap on the government’s contingent liability.

Policy Intent and Political Context

The scheme fulfils a key election promise and forms part of the government’s broader housing strategy, which includes a pledge to build 1.5 million new homes during the current Parliament. Economic Secretary Emma Reynolds emphasised that the scheme is central to helping aspiring homeowners overcome the deposit barrier and achieve their homeownership goals.

Mixed Impact and Market Reception

While the scheme has been welcomed as a step toward improving access to homeownership, early data and expert commentary suggest its impact may be underwhelming. Analysts note that despite the availability of 95% LTV mortgages, uptake has been modest, and broader affordability issues, such as high property prices and stagnant wages, continue to hinder first-time buyers.

Industry voices have also called for greater market stability and complementary reforms, such as loosening mortgage stress testing rules and increasing housing supply, to ensure the scheme delivers meaningful results.

Conclusion

The 2025 Mortgage Guarantee Scheme represents a proactive effort by the UK government to address housing accessibility. However, its long-term success will depend on how well it integrates with wider housing policies and economic conditions. As the scheme rolls out, stakeholders will be watching closely to see whether it truly unlocks the door to homeownership for the next generation.