5% Deposit Mortgage Guarantee Scheme

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5% Deposit – The Mortgage Guarantee Scheme 

In March 2021 the UK government introduced a Mortgage Guarantee Scheme designed to support people onto the property ladder. What are the details behind the new initiative, and how can it help First Time Buyers to purchase a home?

What is the Mortgage Guarantee Scheme?

The Mortgage Guarantee Scheme is a financial promise from the government to mortgage lenders, to encourage them to reintroduce 95% mortgages. 

The pandemic had caused many mortgage providers to withdraw these high loan-to-value mortgages. But as house prices remain high, many First Time Buyers are unable to contribute more than a 5% deposit to get on the property ladder. 

The government has therefore committed financial support to lenders so that they can bring these mortgage products back to the market. 

How does the Mortgage Guarantee Scheme work?

The Mortgage Guarantee Scheme is a commitment from the government to absorb any financial losses from these 5% deposit mortgage deals.  

It doesn’t affect the customer – in fact some of the requirements for these mortgages should work in people’s favour.

For example, the lenders offering these 95% loan-to-value mortgages must offer the customer a five-year, fixed rate deal. Fixed rate mortgages are often easier to manage as your monthly repayments stay constant, no matter what happens to the base interest rate.  

How do I get a Guaranteed Mortgage?

The first lenders to announce that they would offer guaranteed mortgages were Lloyds, NatWest, Santander, Barclays, HSBC and Virgin Money. 

To qualify, the home you are buying needs to have a purchase price of under £600,000. The mortgage will be a fixed rate, repayment product, at up to 95% loan to value. That means you will need at least a 5% deposit. 

Lenders will also look at your income and outgoings to work out how much they will offer you. It’s a good idea to explore this in advance so you can set your property budget.

Joint mortgages are expected to be available if you are considering shared ownership of a home. These 95% deals will be open to application between April 2021 and December 2022.

Do I still need good credit for a 95% mortgage?

Because this kind of mortgage has a relatively small deposit, lenders will want to be certain that you will be able to repay the loan. So your credit rating will be of real importance.

Each lender will have unique criteria on this, so you won’t necessarily need a completely spotless record. 

If you have serious debts on your record you might find approval difficult – speak to us for advice, as there are a few specialist lenders who cater for those with a poor credit history. 

How does the Mortgage Guarantee Scheme work with other Help to Buy initiatives?

The original Mortgage Guarantee Scheme was part of a government programme called Help to Buy. There are a number of Help to Buy initiatives still operating that could also help you achieve your property plans. 

These include:

Help to Buy Equity Loan: Available only on new build properties, this scheme can reduce the monthly repayments on your mortgage because you are loaned money by the government to put towards a deposit. If you have a 5% deposit you can gain a further 20%, (40% in London) interest free for five years. You will then need a mortgage for the rest of the value. 

Help to Buy Shared Ownership: With this scheme you buy a 25% to 75% share in a home via a mortgage, and pay rent on the remainder. You can increase your share over time. 

Right to Buy: If you’ve been a council or housing association tenant for some time, you could have the Right to Buy a home at a significant discount. The size of the discount increases the longer your tenancy has been active for.

How can a Mortgage Broker help?

A Mortgage Broker like Purely Financial can take the stress out of buying a home. We are mortgage experts who know the property market and dozens of different lenders. 

If you feel that a Guaranteed Mortgage could provide the opportunity you need to get on the property ladder, let us help. We’ll explore the market on your behalf, comparing mortgage rates, fees and contract details to make sure you find a deal that will suit you.

We also take time to explain all the options and the risks of a high loan-to-value mortgage so that you can make an informed choice.

We are an appoin ted representative of PRIMIS Mortgage Network. PRIMIS Mortgage Network is a trading style of Personal Touch Financial Services Ltd which is authorised and regulated by the Financial Conduct Authority.

Your home may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.

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