Labour’s ‘Freedom to Buy’ Mortgage Scheme: A Game-Changer for First-Time Buyers?

As the UK’s housing market continues to soar, Labour’s new ‘Freedom to Buy’ scheme promises to help thousands of young Brits get on the property ladder. But what exactly is this scheme, and how will it impact you?

A Permanent Solution to the Mortgage Guarantee Scheme

Labour’s ‘Freedom to Buy’ scheme is a permanent version of the Government’s current Mortgage Guarantee scheme, which is set to expire in June next year. The existing scheme allows lenders to purchase a guarantee on part of mortgages, so the Government can shoulder some of the cost if the lender loses money. This means that lenders can offer low-deposit deals, making it easier for first-time buyers to get on the housing ladder.

How Does it Work?

Under the scheme, borrowers can purchase a home with a smaller deposit of 5% rather than the traditional 10%. The Government acts as a guarantor for part of the home loan, encouraging lenders to offer low-deposit deals. This means that borrowers can buy a home with a smaller deposit, making it more accessible to those who may not have been able to save for a larger deposit.

Who Will Benefit?

Labour claims that making the scheme permanent will help over 80,000 young people get on to the housing ladder over the next five years. The scheme mainly aids people who can afford monthly mortgage payments but are unable to save large sums while renting. This is because borrowers need to pass affordability checks before being granted a mortgage, proving they can make the monthly mortgage payments.

The Catch

However, there are some limitations to the scheme. For example, the property must be worth £600,000 or less, and borrowers must apply for a repayment mortgage. Additionally, not all lenders offer mortgages under the scheme, and some lenders may not opt-in to the scheme.

The Bigger Picture

The scheme’s success will depend on how many lenders opt-in and how many borrowers take advantage of the scheme. With house prices continuing to rise, the deposit required for a mortgage has also increased. According to Halifax, the average house price in the UK is now £288,688, meaning a 10% deposit would be £28,800, and a 5% deposit would be £14,400.

House prices have skyrocketed over the last decade, making it harder for first-time buyers to save for a deposit.

Conclusion

Labour’s ‘Freedom to Buy’ scheme is a step in the right direction to help first-time buyers get on the housing ladder. However, it’s essential to consider the limitations and potential drawbacks of the scheme. As the UK’s housing market continues to evolve, it’s crucial to find innovative solutions to make homeownership more accessible to all.