New 'permanent' scheme comes even as new data shows only 15% can use it
Chancellor Rachel Reeves is poised to announce the creation of a permanent state-backed mortgage guarantee scheme designed to support first-time buyers facing affordability hurdles in a volatile interest rate environment.
The “Freedom to Buy” programme, set to be unveiled in Reeves’ Mansion House address on July 15, will offer long-term support for low-deposit borrowers, cementing a policy that began life as a temporary pandemic-era intervention. Treasury officials say the scheme will guarantee 95% loan-to-value (LTV) mortgages, providing lenders with protection against losses in the event of repossession.
Emma Reynolds, the City minister, confirmed that while the scheme’s maximum contingent liability would remain capped at £3.2 billion—the same level established by the Conservatives in 2022—the Treasury assesses the taxpayer risk as “low.” Lenders participating in the scheme will pay a fee to the government to offset any future claims.
Unlike its predecessor, the new version will not be subject to regular renewal. “The scheme will be permanently available,” said Reynolds in a letter to Sir Geoffrey Clifton-Brown, chair of the House of Commons public accounts committee. “It ends the stop-start availability of the existing, temporary scheme and gives lenders confidence to offer these mortgage products through the economic cycle.”
The launch comes as the Bank of England warns that over 3.5 million mortgage holders are yet to feel the full force of the interest rate tightening cycle that began in late 2021. According to the central bank’s latest Financial Stability Report, nearly one-third of homeowners have yet to refinance on to post-pandemic rates, exposing them to a steep rise in repayments in the years ahead.
Although the base rate has been cut gradually in recent months—now standing at 4.25% after four consecutive reductions—the lag in fixed-rate refinancing means many households will still face higher monthly costs well into 2028. “This mortgage timebomb is a delayed effect of the interest rate cycle,” said one senior industry analyst. “It will stress affordability for a significant share of borrowers.”
Conversely, the Bank estimates that 2.5 million borrowers could benefit from refinancing into lower-rate products, a partial offset to the wider affordability pressure.
Reeves’ speech will also contain proposals to reform the Individual Savings Account (ISA) regime, with the aim of nudging more savers toward stocks and shares over cash—part of a broader agenda to encourage longer-term wealth accumulation.
But it is the permanentisation of the mortgage guarantee scheme that is likely to have the greatest impact on prospective buyers. Recent Bank of England data show that only 15% of aspiring first-time purchasers have sufficient savings for a 5% deposit on a median-priced property in their region. Nearly 80% are locked out by deposit shortfalls, while others fall afoul of affordability metrics or lender criteria.
The Freedom to Buy initiative, by underwriting high-LTV loans, is designed to shift that balance, though industry observers note that success will depend on lender participation and housing supply.
Paul Broadhead, head of mortgage and housing policy at the Building Societies Association, welcomed the announcement but said it must be accompanied by meaningful progress on boosting housing stock. “Supply is the other half of the affordability equation,” he told the Financial Times.
At the same time, the Bank of England’s Financial Policy Committee (FPC) has indicated it will relax implementation of the loan-to-income (LTI) cap imposed on lenders, introduced in 2014 to curb risky borrowing. While the overall 15% market-wide limit on loans exceeding 4.5 times a borrower’s income will remain in place, individual banks will be permitted to exceed that threshold—provided the aggregate ceiling is not breached.
The FPC said the move “supports the government’s priority to make home ownership more accessible,” particularly at a time when wage growth has failed to keep pace with house prices.
Reeves’ Mansion House address will be her first major policy statement since the breakdown of proposed welfare reforms earlier this month. With mounting pressure to offer tangible help to working households, the mortgage industry will be watching closely to see whether Freedom to Buy proves to be a structural solution—or simply a temporary balm in a longer-term affordability crisis.
