The Mortgage Guarantee Scheme

The Mortgage Guarantee Scheme

The government has unveiled a new scheme to help people get on the property ladder. Announced by Rishi Sunak as part of the Budget, the Mortgage Guarantee Scheme could help you achieve your property goals.

What is the Mortgage Guarantee Scheme?

The Mortgage Guarantee Scheme is a new initiative from the government that aims ‘to turn generation rent into generation buy’. In recent months the number of lenders offering a 95% loan-to-value mortgage has fallen – but for many, a 5% deposit is the maximum they can comfortably put towards buying a home.

With this new scheme, the government is offering financial guarantees to mortgage lenders to encourage them to approve people with 5% deposits. Essentially, if a customer were to default on their 95% mortgage, the government has promised to absorb some of the lender’s loss.

How does the Mortgage Guarantee Scheme help people buy a home?

One of the main advantages for buyers is that lenders involved must offer customers a five-year fixed rate mortgage deal. A fixed rate deal is less risky for the borrower, as their payments stay constant from month to month – they don’t increase or decrease with changes to the base interest rate.

Lloyds, NatWest, Santander, Barclays, HSBC and Virgin Money were among the first brands to announce new mortgages under the scheme. These mortgages will be open for applications between April 2021 and 31 December 2022.

What are the rules of the scheme?

The Mortgage Guarantee Scheme only applies to residential mortgage products. Buy to Let deals are not included, and the loan must be a repayment deal rather than interest only. The maximum property value is £600,000 at a 91% to 95% loan to value – which means you will need a 5% to 9% deposit.

Will lenders check my credit score for a Guaranteed Mortgage?

Lenders will always look at your credit record as part of a mortgage application, to see if you have had any debt problems in the past.

With a high loan-to-value mortgage lenders are less willing to take risks, but that doesn’t mean your credit score has to be perfect. Every lender will have its own criteria setting out what they will and won’t accept.

How much will I be able to borrow on a Guaranteed Mortgage?

Lenders offer mortgages based on your income and the size of your deposit. A mortgage calculator is useful to give you an idea of much you could borrow – although the exact amount will vary by lender.

The calculator will also help you make sure your monthly mortgage repayments will be affordable. If you struggle to keep up with the payments, you could lose your home.

Mortgage offers can vary significantly depending on the lender so it’s worth looking at a number of different deals. Compare both rates and fees to narrow down the options.

What other fees will I need to pay?

Buying a home involves a lot of spending: expect bills for solicitors, searches and surveys, and you will also need to buy buildings and life insurance to satisfy your mortgage contract. It might be worth exploring other protection products too, such as income protection cover, critical illness cover or contents insurance.

There is also tax to pay, in the form of stamp duty – although if you’re first time buyers you are exempt. At the moment, as a move to keep the property market moving, stamp duty is currently due only on houses valued at £500,000 and over.

This threshold reduces to £250,000 at the end of June and reverts to £125,000 at the end of September 2021.

How can a Mortgage Broker help?

If you think the Mortgage Guarantee Scheme will help you get on the property ladder, we can help you explore the opportunities. As specialist mortgage experts, we’re here to support you at every step.

We’ll get to know you, your specific situation and the house prices you’re aiming for. Exploring these details will help us find the most suitable 95% mortgages. We’ll compare the lenders and their products, look at the rates and fees and make sure you understand the pros and cons of a high loan-to-value mortgage.

There are also other government Help to Buy options that could support you. We can explain all the details, find potential opportunities and work with you to buy the home you’ve been hoping for. Get in touch today for an informal discussion about how we can help.