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Britain's government announced late on Monday that it would extend a programme that encourages lenders to offer 95% loan-to-value mortgages to first-time buyers, as the housing market heads into a downturn.

The Mortgage Guarantee Scheme was launched in April 2021 and had been due to stop at the end of this year but instead will continue until the end of 2023. More than 24,000 households have obtained mortgages under the programme.

The extension comes as lenders report falling house prices in the face of rising mortgage interest rates and a squeeze on buyers' disposable income. In October, inflation hit a 41-year high.

"Extending this scheme means thousands more have the chance to benefit, and supports the market as we navigate through these difficult times," deputy finance minister John Glen said.

Last week mortgage lender Halifax forecast house prices would drop 8% next year, and in November it recorded the largest monthly drop in house prices since 2008.

Under the mortgage guarantee scheme, the government receives a fee from lenders in exchange for covering almost all the extra risk of a 95% loan-to-value mortgage, compared to one that is made at 80% loan-to-value. The fee is intended to cover expected losses and administration costs.

British house prices surged by more than a quarter after the start of the COVID-19 pandemic, making it hard for most first-time buyers to find a deposit greater than 5%.

The mortgage guarantee scheme can be used to finance house purchases costing up to 600,000 pounds ($731,000).

The Bank of England has warned that people with mortgages are likely to come under greater financial pressure over the coming year but are in a stronger position than before previous recessions in 2008-09 and the early 1990s. (reuters)