Mortgage Guarantee Scheme

If you’re one of the many people who want to get onto the property ladder or move home but don’t have the luxury of a large deposit to put down, you could benefit from the government’s mortgage guarantee scheme.

With house prices continuing to rise, along with inflation and interest rates, 95% mortgages are still as in-demand as ever. Here we look in detail at whether this scheme could benefit you, what it involves and what you need to do to move forward.

What is the mortgage guarantee scheme?

When the Covid-19 pandemic struck in 2020 and the chances of getting a high loan-to-value mortgage deal disappeared quickly due to banks fearing economic upheaval, the UK Government launched the scheme to encourage lenders to bring 95% mortgages back.

Since its introduction in April 2021, a number of lenders have agreed to revive the high loan-to-value terms, giving would-be homeowners without a substantial deposit a chance to either get on the property ladder or move onto their next home.

Understanding which lenders are on board and how easy they are to secure can be unclear, so it’s worth talking to a professional advisor who understands these products when you’re starting out.

When does it end?

The scheme is due to come to an end for new applicants on December 31, 2022, however it’s worth noting that the mortgage guarantee from the government lasts up to seven years after the beginning of a secured mortgage term.

Evidence suggests that most people would be unlikely to default after this time period, and they will have paid enough capital that the guarantee would no longer be necessary. The government has said it will review whether the scheme needs to be extended when it nears a close.

How does it work?

In effect, the government agrees to share the risk with lenders to ensure eligible borrowers can get a mortgage, even if they only have a 5% deposit to put down. The treasury ‘guarantees’ a portion of the mortgage – up to 80% of the purchase value – in the event of a homeowner defaulting on their repayments.

The participating lenders are charged a commercial fee for obtaining this guarantee policy, and they must still take on 5% of any losses that might occur above the 80% cap. As a further safety net to buyers, the government also insists lenders must offer five year fixed rate mortgages as part of this scheme, which goes some way to ensuring borrowers are not facing huge hikes in interest straight away.

Perhaps because of the stipulations, there are not an abundance of lenders who have signed up to the scheme, but they are out there if you know where to look.

Eligibility criteria

Taking on a 95% mortgage via the guarantee scheme is very similar to any other high loan-to-value (LTV) home loan. It comes with a certain set of criteria you must match and includes a number of affordability and credit score checks.

The Bank of England published a report in 2020 which revealed about 75% of people renting are likely to be held back from getting a mortgage based purely on an inability to raise a large deposit, rather than an issue with affordability of monthly repayments. If you have a strong application and can reach that 5% figure, this scheme could negate that fact if it applies to you.

Who can qualify

• The scheme is for both first time buyers and home movers
• Individuals, not companies
• People who live in the UK

Other factors to consider

• The property being bought must be £600,000 or less
• Applies to only residential mortgages, not second homes or buy-to-lets
• You can put down up to 9% deposit

How a broker can help you apply for the scheme

Understanding where to begin when applying for a complex government scheme can be daunting. A good mortgage broker will be experienced in such products and blueprints set out by the treasury, and will be able to pass on their knowledge, expertise and understanding of the market.

Supportive advisors, like the ones we work with, are able to see what best fits your individual needs and can steer you on the right path with a practical and objective service. This involves taking time to see your circumstances clearly, looking for the right product in the right place, guiding you through a lengthy application process and gathering paperwork, and ultimately negotiating on your behalf.

If you get in touch we’ll arrange for a broker who has experience with all aspects of the mortgage guarantee scheme to contact you directly for a free, initial discussion.

Lenders and rates

There are still only a handful of lenders currently signed up to this scheme right now, even though we’re a way on from 2021. There are a number of big names in the mix though, such as Barclays, NatWest and HSBC.

The treasury said this scheme is similar to the Help to Buy Scheme in 2013, which was created after the financial crisis in 2008. After that, the number of mortgage lenders on board rose from 43 to 261 in four years, according to the government.

Beware that some do have their own stipulations, such as excluding new-builds, self-employed applicants or flats. There may be drawbacks such as unfavourable loan-to-income ratio caps and high interest rates to contend with too.

The rates available are in line with other low-deposit mortgage deals, which means they are generally higher than those offered to borrowers with lower LTVs.

How does bad credit affect applying for the scheme?

The government stated that it wanted this scheme to boost the appetite of lenders willing to help ‘creditworthy’ customers. A Bad credit record doesn’t necessarily mean you won’t qualify, however it’s worth bearing in mind there may be extra hurdles in the application process, which a good broker can help you to overcome.

Alternative mortgage options

If you’re not quite sure the mortgage guarantee scheme is the right option for you, there’s a number of alternatives you could consider, such as:

• Regular 90-95% mortgages: These are appearing on the market without being part of the scheme.
• Help to Buy scheme: Created to help first-time buyers get on the ladder, the government lends up to 20% of the total of a new-build home, or 40% in London, so they can access fair loan-to-value products.
• Guarantor mortgages: A relative or friend can take the place of the government and guarantee your mortgage. This is the only way to get a 100% mortgage.
• Shared Ownership scheme: If you’re a first-time buyer but can’t afford a property, this option helps get on the ladder by sharing a part purchase, part rent arrangement with the government through a housing association.

Get support from a mortgage broker experienced in government schemes

If you’re hoping to benefit from the mortgage guarantee scheme but don’t know where to start, we can help get you matched with an expert advisor who is tailored to your exact needs. The brokers we work with are supportive, reliable, experienced and impartial, and have your very best interests at heart.

Find out how they can help you get the very best outcome and call us today on 0808 189 0463 or make an enquiry online for a free, no-obligation initial call.