The 5% mortgage scheme extended in the Autumn Statement but no Lifetime Isa boost

The government has extended the deadline for its mortgage guarantee scheme, which aims to help people buying homes with small deposits.

In today’s autumn statement, Chancellor Jeremy Hunt said the scheme, which was due to end on December 31, would now remain open for a further 18 months until the end of June 2025.

It was introduced in 2021 and aims to encourage banks and building societies to hand out mortgages with a 5 per cent deposit.

It does this by agreeing that the government would cover part of the banks’ financial losses if the buyer were unable to pay their mortgage.

However, critics have previously labeled the scheme as ‘redundant’, because these mortgages are only taken out by a small number of buyers.

According to Ministry of Finance statistics, it was used for 37,376 home purchases between its launch in April 2021 and March 2023.

This amounts to about 1,550 purchases per month, or 1 percent of the total in that period.

This is because most banks are now happy to take on the risk of 5 percent deposit mortgages without using the Mortgage Guarantee.

From a buyer’s perspective, there is little difference between the two.

Concerns have also been raised about the affordability of mortgages with a 5 per cent deposit in a high interest rate environment, and whether buying a house with so little equity is sensible as house prices fall.

Recent analysis has also shown that the majority of single starters on an average salary cannot afford to use the scheme.

Documents showed the cost to the government of expanding the scheme would be £5 million per financial year.

Relaxed rules for converting houses into two apartments

Other housing announcements in the Autumn Declaration included a new permitted building right, which allowed houses to be divided into two apartments without full planning permission.

According to the chancellor, this would apply as long as the exterior appearance of the house did not change.

The policy will be consulted at the beginning of this year and implemented later in 2024.

Paula Higgins, chief executive of the HomeOwners Alliance, said: ‘We hope that making it easier to convert houses into apartments will boost private rentals and create more right-sized homes.

“But the government does not have a good track record when it comes to expanding permitted development rights.

‘The quality element can be missing and is all too often not up to standard, as we have seen with these conversions from office to apartment.’

Other permitted development rights that already exist include the right to increase the height of a building by two floors under certain circumstances and to convert certain offices into apartments.

The policy is intended to make it easier for homeowners and developers to extend or renovate existing properties in ways that do not materially change their appearance, thereby increasing the size and supply of available housing.

In the document published alongside the Autumn Statement, the government also said it would provide £3 million in funding for ‘measures to improve the buying and selling process of houses, including pilots to develop real estate technology products and digitize real estate data from municipalities.’

No further details about these measures were provided.

Splitting: A new proposal could make it easier to convert these types of houses into two individual apartments, without the need for full planning permission

Hunt opts for Lifetime Isa and stamp duty reforms

Ahead of the autumn statement, there were rumors that the Chancellor would consider reforming stamp duty, the tax that many home movers have to pay when they buy a property.

Home movers currently pay no stamp duty up to a value of £250,000, and first-time buyers are exempt from the tax unless their property is worth more than £425,000.

According to official statistics, the average house in Britain is worth £291,000.

On March 31, 2025, the threshold for non-starter movers will be reduced again to £125,000.

Supporters of keeping the current allowance, or even further reducing the amount people pay, had said this could revive the lagging housing market, but this was not included in the closing speech.

Jonathan Stinton, head of intermediary relations at Coventry Building Society, said: ‘We had hoped it would happen today, but it looks like we will have to wait until at least March for the long-awaited stamp duty announcement.

It’s clear that changes to stamp duty are in the offing one way or another. The Chancellor can orchestrate the change through a well-considered reform, or he can ignore it and let the temporary relief expire.

‘Let’s hope it’s not the last, as that choice could see homebuyers paying an extra £2,500 for an average-priced home in March 2025.

There was also talk of an increase in the amount savers could put into a Lifetime Isa each tax year, currently set at £4,000.

The account should be used to buy a first home or save for retirement, and offers a government bonus of £1 for every £4 you save – but for now the contribution limit remains the same.

There was also talk of extending the maximum value of a property that can be bought with money from a Lifetime Isa beyond the current limit of £425,000, which would bring it more in line with the rise in property values since the Lisa started in 2017.

This was also not included in the final version of the Autumn Declaration.