Mortgage guarantee scheme extended to June 2025

The mortgage guarantee scheme has been extended to June 2025, UK Finance said in its Household Finance Review for the third quarter of 2023, published in December 2023¹. The extension was one of several smaller measures announced alongside the Autumn Statement, which UK Finance said included a 2p cut to the main rate of employee National Insurance contributions, uprating of working age benefits by inflation and further support for job seekers¹.

The scheme sits within a mortgage market that UK Finance described as weak in almost every segment, with the contraction most acute at the tighter end of affordability, particularly lending at higher loan-to-value ratios and higher income multiples¹. Lending to both first time buyers and home movers had fallen year on year in every month since December 2022, and UK Finance said indications were that the fourth quarter of 2023 would show a further contraction¹. Buyers on lower incomes were putting down deposits equal to twice their annual income to meet affordability requirements, according to the review¹.

The wider backdrop at the time of the review was one of fragile household finances. CPI inflation fell to 4.6 per cent in October 2023, though UK Finance noted the main contributor was a reduction in the energy price cap, with core inflation at 5.7 per cent and services inflation at 6.6 per cent¹. The Bank of England's Monetary Policy Committee voted to retain Bank Rate at 5.25 per cent at both its September and November 2023 meetings, and UK Finance said the overall message was that consideration of interest rate cuts was still some way off¹. Arrears rose in the third quarter, with signs of further increases ahead, though cases remained mainly older mortgages¹.

Why it matters for households

The extension keeps the scheme open for a further period, meaning mortgages on homes bought with a small deposit continue to have a guarantee available behind them beyond the point at which the scheme would otherwise have closed. For households with a small deposit, the practical effect is that this route to a mortgage remains in place until June 2025, rather than ending earlier.

The review sets out the conditions buyers were facing at the time: higher interest rates and cost-of-living pressures acting as a significant barrier to mortgage affordability, and lending at higher loan-to-value ratios and income multiples falling most sharply¹. UK Finance also reported that households were running down savings to cover increased monthly bills, with no sign at that stage of increased reliance on overdrafts or credit cards to cover shortfalls¹. Possessions fell slightly and remained at historically very low levels, and UK Finance said no possessions related to arrears newly arising amid cost-of-living and interest rate pressures were expected until the end of 2024 at the earliest¹.

What happens next

The scheme runs to June 2025 under the extension reported by UK Finance¹. The review also noted that the Bank of England expected the full effects of past rate rises on GDP to be felt only in 2025, and that it predicted no GDP growth through 2024¹. The Office for Budget Responsibility forecast growth of 0.7 per cent for the following year, a significant downgrade to its March forecast¹. No further detail on the operation of the scheme beyond the June 2025 date has been reported in this review.

Households weighing how a guarantee-backed mortgage works alongside a small deposit can read our guide to buying with a small deposit under the Mortgage Guarantee Scheme and the wider explanation of the Mortgage Guarantee Scheme and the Help to Buy guarantee. For the surrounding market, see our mortgages hub and home-buying hub.