The Government is committed to supporting people who aspire to become homeowners. In recent years, increased deposit requirements and falling equity values have left many hardworking households unable to get onto the housing ladder or trapped in homes unsuited to their aspirations and needs. In today’s Budget the Government has therefore announced the Help to Buy package to support a new generation in realizing the dream of homeownership. This package includes the introduction of a new mortgage guarantee to enable more households to access mortgages on both new build and existing homes, without the need for prohibitively large deposits. Help to Buy: mortgage guarantee will be designed to increase the appetite of mortgage lenders for high loan-to-value lending to creditworthy customers. It will provide lenders with the option to purchase a Government guarantee that compensates them for a portion of their losses in the event of foreclosure. The Government will charge a commercial fee for the provision of this guarantee. This technical paper sets out the working assumptions for Help to Buy: mortgage guarantee.

These do not represent a final scheme design; this will be developed following further analysis and discussion with industry. The overarching principles of the proposed design are to provide a scheme. The availability of high loan-to-value (LTV) lending has seen a sharp reduction in the wake of the financial crisis, as shown in chart 2.A. The reduction in high LTV mortgage availability has been reflected in the increase in the average deposit for a first-time buyer. Chart 2.B illustrates how average deposits for first-time buyers have risen from around 35 per cent of average incomes in 2006 to just under 80 per cent in 2012. There has been an associated reduction in the number of people buying their first home in the last five years. In 2012 there were 40 per cent fewer first-time buyers than in 2007. Where first-time buyers have been able to get on the housing ladder they are increasingly reliant on support from their parents or relatives. While the median age of a first-time buyer has risen only marginally since 2007, the Council of Mortgage Lenders (CML) have estimated that the median age of an ‘unassisted’ first-time buyer has risen from 30 to 33.