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Mortgage guarantee scheme

How to use the Government’s Mortgage Guarantee Scheme

In the February 2021 Budget, the Chancellor announced the launch of the Government’s Mortgage Guarantee Scheme. This long-awaited scheme aims to make it easier for those with a 5% deposit to buy a home.

Aiming to increase the availability of 95% Loan-to-value mortgages, the scheme looks to enable more people to access mortgages without needing such large deposits*. The Mortgage Guarantee Scheme is set to launch in April 2021 and will run until December 2022.

Adam Nanson, Independent Mortgage Adviser at Your Mortgage Expert looks at how to use the Government’s mortgage guarantee scheme.

Why has the scheme been introduced?

Over the last year, most lenders have looked at their mortgage lending criteria. This is as a result of the Covid-19 Pandemic amid concerns around the economy and the wider housing market.

Mortgages with a 5% deposit are generally deemed to be more-risky. This is because, if house prices were to fall, they would be more likely to fall into negative equity. As a result, many mortgages with a low deposit were withdrawn from sale making it more difficult for those with small deposits to access mortgages.

This scheme aims to redress some of this balance by the UK Government taking on some of the risk. Meaning lenders have more protection which hopefully gives them the confidence to lend to those with a lower deposit.

How will the mortgage guarantee scheme work?

A replacement for the Help to Buy Scheme that ran until 2016, this scheme will work similarly. It is open to anyone buying a house with a purchase price of less than £600,000. House buyers will be able to apply for a 95% mortgage from a list of lenders participating in the scheme.

Although the Government is acting as Guarantor for the lender, the homeowner will still be responsible for ensuring they pay their mortgage. As with all mortgages, your home may be at risk if you do not keep up your mortgage payments.

Who is eligible to use the Mortgage Guarantee Scheme?

The scheme is designed to help purchases of residential properties. This means that current homeowners and First Time Buyers can take advantage. However, it can not be used to buy second homes or Buy to Let properties.

As always, the lender will go through standard affordability checks. You’ll need to apply for a repayment (not interest-only) mortgage.

Which Lenders will offer mortgages through the Mortgage Guarantee Scheme?

The Chancellor claimed that Lloyds, NatWest, Santander, Barclays and HSBC will be offering these 95 per cent mortgages from next April 2021**. However, a complete list of lenders who will be taking advantage of the scheme has yet to be announced.

What rates will be available?

We expect the detail relating to the rates to emerge over the coming months as the lenders launch their deals. Generally speaking though, house buyers get lower rates if they have a larger deposit.

What should I do next?

If you are wondering whether the Mortgage Guarantee scheme is suitable for you, we would advise you to seek independent mortgage advice. At Your Mortgage Expert, we understand how the mortgage market works. We will look at your personal situation and help you understand what you can afford and what type of mortgage will be available to you based on your circumstances.

We don’t charge anything up front, so by speaking to us, you are under no obligation. We are based in Salisbury, Wiltshire, but we can help you no matter where you live in the UK.

Simply call us on 01722 322683 or complete a contact us form on our website and tell us when it would be best to get back in touch with you.

The information contained within this article was correct at the time of publication. It is intended for information only and does not constitute advice. Neither Your Mortgage Expert Ltd nor TenetLime Ltd cannot be held responsible for information that was correct at the time of publication but subsequently changes or goes out of date due to changes in legislation. For further information, contact Your Mortgage Expert on 01722 322683.

*source: https://www.gov.uk/government/publications/the-mortgage-guarantee-scheme

**source : https://www.ftadviser.com/mortgages/2021/03/03/budget-2021-chancellor-announces-mortgage-guarantee-scheme/

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