Chancellor George Osborne has just announced a radical new scheme designed to help first-time buyers get on the property market, as the government will guarantee low deposit mortgages. The scheme is aimed at helping people who are unable to raise enough cash for a deposit, as this is currently one of the biggest barriers towards securing a good mortgage rate. This mortgage indemnity guarantee is likely to increase the attractiveness of first-time buyers with small deposits to lenders as it would protect them from any loss should their home fall into negative equity. The lender would be able to claim the difference under the terms of the guarantee.

The scheme would help buyers who have just 5% deposit secure a good mortgage rate, as many of the best deals are only available to buyers who have at least a 20% deposit. At the height of the slump the deposit required was an average of 25% so things have improved slightly, but before the financial crisis the average loan to value for first-time buyers was 92%, while in the 80s and 90s it was even higher at 94%. It is likely this mortgage guarantee scheme will be introduced in conjunction with property developers who are already offering first-time buyers incentives. Although some lenders still offer 95% mortgages, funding is extremely limited and many lenders have chosen to concentrate on less risky borrowers who have larger deposits, with the buy to let sector remaining popular.