5% Deposit Mortgage Guarantee Scheme

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Help to Buy – The Mortgage Guarantee Scheme  

In the March 2021 Budget, Chancellor Rishi Sunak unveiled a new scheme to help people get on the property ladder. Could the Mortgage Guarantee Scheme help you achieve your property goals?

What is the Mortgage Guarantee Scheme?

The Mortgage Guarantee Scheme is a response to the drop in the number of mortgage lenders offering a 95% loan-to-value mortgage. For many people, a 5% deposit is the maximum they can comfortably contribute when buying a home. 

Under the new scheme, the government is supporting mortgage lenders to offer 95% mortgages. Essentially, if a customer were to default on their mortgage, the government now guarantees to absorb some of the lender’s loss. 

What does the Mortgage Guarantee Scheme involve?

The scheme is based on a similar initiative launched in 2013 after the financial crisis. Importantly, the lender taking advantage of the scheme must offer customers a five-year fixed rate mortgage deal. This gives people better financial security, as their payments stay the same every month and don’t rise or fall depending on national interest rates.

According to the Financial Times, lenders including Lloyds, NatWest, Santander, Barclays, HSBC and Virgin Money were the first brands to announce they would offer mortgages under the new scheme. These mortgages will apply from April 2021 to 31 December 2022.

Are there any restrictions under the scheme?

The scheme applies to residential repayment mortgages (not Buy to Let), and must be taken out by an individual rather than a company. The maximum property value is £600,000, and the mortgage needs a 91% to 95% loan to value – which means you will need a 5% to 9% deposit.  

Will I need a good credit score for a Help to Buy Guaranteed Mortgage?

As always, lenders will look at your credit record to see if you have had any debt problems in the past. Each lender will have different guidelines on this, so you might find that you can still be accepted with a small-scale debt on your record.  

There are a few steps you can take to improve your credit rating. First, make sure you’re on the electoral roll, and avoid moving house often, as it helps if you have a single address for a year or two. Check your credit record, as occasionally there can be errors. 

How much could I borrow with a Guaranteed Mortgage?

Your total loan amount will depend on the size of your deposit and how much you earn. You can input these details into a mortgage calculator to see how much you might be able to borrow – although each lender will potentially offer you a slightly different total. 

Check that the monthly mortgage repayments will be affordable. If you are unable to keep up with the payments, there’s a chance you could lose your home. 

Compare mortgage offers across a few lenders, as they can vary significantly. Look at both rates and fees, as these will help you narrow down the options. 

What other fees will I need to pay?

There are various other fees and payments when you buy a home, although first time buyers don’t need to pay stamp duty. 

Stamp duty is currently due only on houses valued at £500,000 and over, but this threshold reduces to £250,000 at the end of June and reverts to £125,000 at the end of September 2021.

Anyone buying a home will need to pay for solicitors, searches and surveys and you will also need buildings cover for your mortgage contract. Other protection products might prove valuable too, like income protection cover, life assurance, critical illness cover or contents insurance.

How can a Mortgage Broker help?

If you think this new scheme will make it easier for you to afford a home, we can help you explore all the options. We’re specialist experts on mortgages, and we’re here to assist at every step. 

We’ll spend time with you to understand your specific situation and the kind of house prices you’re aiming for. That information will help us find the most suitable 95% mortgages for you. We’ll compare rates and fees, as well as lending criteria, and make sure you understand the opportunities and risks of a high loan-to-value mortgage. 

We can also help you explore other Help to Buy options that might work for you. First time buyers often find the mortgage options and legal jargon a little confusing, so let us guide you through the process. We do all the hard work for you, recommending the most suitable mortgage options to help you buy a home.