A plan for the government to offer incentive to lenders who offer 95 per cent mortgages has elicited mixed reaction from the industry.

The proposed scheme, set to be announced in the Budget on Wednesday 3 March, will give buyers (and not just first-time buyers) the option to put down a 5 per cent deposit on a home worth up to £600,000, tackling the problem of higher-LTV mortgages disappearing from the market.

It is believed that mortgage lenders will be offered a government-backed guarantee on a slice of these riskier loans, effectively exposing the treasury to the behaviour of the housing market.

Just last month, the Office for National Statistics stated that with an 8.5 per cent annual rise, house prices rose at the fastest rate at the end of 2020 since October 2014.

Some people in the mortgage industry believe that this new scheme will see prices rise even higher. The Money Group director and co-founder Martin Stewart says: “It’s petrol being thrown onto a fire. All we need is a little patience for the market to find its feet, stabilise and then rebuild.

“Anyone daring to suggest that the property is a free market is being disingenuous at best. It is underpinned with state intervention and next time those people find themselves pointing a finger a finger at North Korea they might want to see how many of their own fingers are pointing back at themselves.”

And Phoebus Software sales and marketing director Richard Pike comments: “It is evident that the government is set on its path of moving generation rent into generation buy.

“If… the new mortgage guarantee scheme is announced on Wednesday more FTBs will find themselves in a better position to move onto the property ladder.

“Of course, there is always the question of supply and, with new-build developments well below the government’s target, that may be an issue down the line. One that may well push up prices.

“It’s a fine line, as always… the positive is that the housing market is not being left behind in the chancellor’s plans for recovery.”

However, SPF Private Clients chief executive Mark Harris says: “It is positive news for FTBs, particularly as it is not restricted to new homes, although critics may argue that it will only aid house price inflation.

“But without such a scheme would developers be so keen to put spades in the ground? The supply of new housing is nowhere near where it needs to be to satisfy demand.”

Twenty7Tec sales director Phil Bailey says that a 95 per cent LTV mortgage scheme, backed by the governance and sitting alongside Help to Buy, “Would go a long way in providing lenders with the confidence they need to further support this area of lending.

“Right now,” he points out, “lenders continue to be cautious and although we have seen an increase in 90 per cent and over products come to market (more than doubling since June), affordability, criteria and increased difficulty in securing these higher-risk mortgages continue to be challenging for many, especially those stepping onto the property ladder for the first time.

“If the government wants to achieve its new homes target at any point, a scheme to support the buyers of these properties is required.”