Two thirds of lenders think competition in the mortgage market for those with a small deposit will falter if the Government does not put in place a new scheme.

First-time buyers could struggle to buy a home if the Government does not set up a permanent replacement for the Help to Buy scheme, a trade body warned today.

Around 65 per cent of lenders think competition in the mortgage market for people with only small deposits will falter if the Government does not put in place a new scheme when the mortgage guarantee element of Help to Buy expires.

Just 14 per cent of mortgage brokers think scaling back the scheme will benefit the market, with the majority of the industry concerned that young people will struggle to buy a home, according to the Intermediary Mortgage Lenders Association.

Under the mortgage element of the Help to Buy scheme, dubbed Help to Buy 2, people can buy a home with a deposit of as little as 5 per cent, with the Government guaranteeing up to 15 per cent of the loan.

The scheme has been key to encouraging lenders to offer more mortgages at high loan to value ratios, with a recent study by Genworth and Moneyfacts showing the number of 95 per cent LTV loans had recently reached a post-recession high of 181, a third of which were being offered through Help to Buy 2.

But the scheme is due to expire at the end of 2016, and no plans for a replacement have been announced.

Research carried out by IMLA found that 75 per cent of brokers and 65 per cent of lenders think first-time buyer numbers will fall if the scheme ends without a successor being put in place.

The research also found that 40 per cent of lenders and 51 per cent of brokers fear the scheme may be scaled back this year, despite the fact that the majority of both groups do not think this would help the market.

IMLA is calling for Britain's political parties to address the issue in their election manifestos.

It wants them to commit to implementing a permanent state-backed or private mortgage indemnity guarantee scheme to support high LTV lending in the long term.

It argues this would ease the pressure on lenders’ capital requirements, which limits their capacity to offer mortgages to people with small deposits.

Peter Williams, executive director of IMLA, said: “The Help to Buy mortgage guarantee has breathed new life into the market and opened the door to more prospective homeowners without sacrificing standards when it comes to affordability checks.

“It is encouraging to see more lenders offering 95 per cent LTV products outside of the scheme, but it would be a big gamble to rely on this continuing without the boost that the Government has brought to the first-time buyer market.

“Homeownership continues to fall, especially among younger adults, and letting Help to Buy expire without a permanent replacement will be another nail in the coffin of the ambitions of many people to own their own home.”

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