The chancellor is expected to unveil a mortgage guarantee scheme that aims to help first-time buyers get their foot on the property ladder in next week’s budget.
Rishi Sunak is attempting to incentivise lenders to provide mortgages to first-time buyers, along with current homeowners, with deposits as low as 5% on properties worth up to £600,000. The government will offer lenders the guarantee they need to provide mortgages covering the remaining 95%, with details set to be unveiled on Wednesday.
The scheme will be subject to standard affordability checks, and is expected to launch in April.
Low-deposit mortgages have virtually disappeared due to the economic impact of the coronavirus pandemic, the Treasury said as Boris Johnson announced he wanted “generation rent to become generation buy”.
“Young people shouldn’t feel excluded from the chance of owning their own home and now it will be easier than ever to get on to the property ladder,” the prime minister said.
Sunak’s mortgage guarantee scheme is based on the help-to-buy mortgage programme introduced by David Cameron and George Osborne, which ran until June 2017. The scheme was an attempt to kickstart the housing market following the 2008 financial crisis, and was estimated to have helped sell more than 100,000 homes in the UK.
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Sunak said: “Owning a home is a dream for millions across the UK and we want to help as many people as possible.
“Saving up for a big deposit can often be difficult, and the pandemic has meant there are fewer low deposit mortgages available.”
However, in an interview with the Financial Times, the chancellor said there was a need to “level with people” over the state of the UK economy, which was under enormous strain.
“There are some people who think you can ignore the problem. And worse, there are some people who think there isn’t a problem at all. I don’t think that,” he said.
“We now have far more debt than we used to and because interest rates … at least a month or two ago were exceptionally low, that means we remain exposed to changes in those rates.”
In an attempt to support the UK’s economic recovery from the pandemic, Sunak has also announced measures to tackle unemployment as the furlough scheme comes to an end, including new funding and cash incentives for apprenticeship schemes.
The temporary £20-a-week rise in universal credit payments is expected to be extended after its planned end in April, but it is not clear how long this will be in place.
Meanwhile, corporation tax is expected to be increased from 19% to about 23%, and capital gains tax will also rise. These changes will be phased in after lockdown has lifted, but are likely to rile some Conservative backbenchers.
Speaking on Saturday, the former chancellor Ken Clarke urged Sunak not to end emergency economic packages yet, but to prepare to tackle spiralling debt.
“[Sunak] has to keep in place things like the furlough scheme, the successful parts of the package that stopped the economy collapsing and kept alive good business, good jobs, that will revive if we can get ourselves through the end of this Covid crisis,” he told BBC Radio 4’s Today programme.
“That means more spending, more debt piling up. What he also has to do is start actually preparing for how he’s going to get that debt under control, how he’s going to return the burden of debt to normality, how he’s going to raise taxation, and I think he’s set out his intention to do that.”