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5% Deposit - The Mortgage Guarantee Scheme
A new government scheme has been launched to help people get on the property ladder. Aimed at boosting the mortgage market in the wake of the Covid-19 pandemic, the Mortgage Guarantee Scheme could help you achieve your property goals.
What is the Mortgage Guarantee Scheme?
The Mortgage Guarantee Scheme was announced in March 2021 to ‘turn generation rent into generation buy,’ in the words of the Prime Minister.
It has been introduced because fewer lenders were offering a 95% loan-to-value mortgage, particularly in recent months. Because a 5% deposit is the maximum many people can afford, this reduction in deals was affecting First Time Buyers.
The Mortgage Guarantee Scheme offers a financial guarantee to mortgage lenders, so that they are more comfortable about taking on a customer with a 5% deposit. It means that the government will absorb some of the lender’s loss if a customer can’t repay their loan.
Does the Mortgage Guarantee Scheme apply to a certain type of mortgage?
An important advantage of the scheme for buyers is that the lenders involved have to offer a five-year fixed rate mortgage. Fixed rate deals are less risky for borrowers as monthly payments stay constant – they don’t change in line with the base interest rate.
Lloyds, NatWest, Santander, Barclays, HSBC and Virgin Money were among the first banks and building societies to announce they were joining the scheme. The mortgages will be available for application between April 2021 and 31 December 2022.
Am I eligible for mortgages in the Scheme?
The Help to Buy Mortgage Guarantee Scheme only applies to mortgages on residential homes (not Buy to Let) priced up to £600,000. You must be taking out a repayment mortgage rather than interest only, and the Loan to Value must be 91% to 95% – so you will need a 5% to 9% deposit.
Will I still need a good credit score for a Help to Buy Guaranteed Mortgage?
Yes, as always the lender will look at your credit record as part of the mortgage application. They want to see how risky it might be to lend to you, by understanding if you have had any previous debt problems.
When a mortgage has a high Loan to Value mortgage lenders are less willing to take risks, but your credit score doesn’t have to be spotless. Each lender has its own criteria guiding whether or not you will be accepted.
How much could I borrow on a Guaranteed Mortgage?
A lender will base their mortgage offer to you on your income and deposit. By putting your salary and savings into a mortgage calculator you can see roughly how much you could borrow and what the monthly mortgage repayments will cost.
Loan amounts, interest rates, fees and mortgage conditions can vary a lot from one lender to another, so it’s important to compare lots of mortgage products, especially when you’re planning to buy your first home.
What other fees will I need to pay?
When lenders offer mortgages to you there will often be an arrangement fee, and sometimes a booking fee too. You will also need to pay for solicitors, searches and surveys, and usually your lender will ask you to buy buildings and life insurance as part of the mortgage contract.
If you’re a First Time Buyer, you don’t have to pay stamp duty at least, and at the moment, stamp duty is currently due only when house prices are £500,000 or over. This will drop to £250,000 at the end of June and return to its previous limit of £125,000 at the end of September 2021.
How can a Mortgage Broker help?
If you want to buy a home and have a 5-9% deposit saved, the Mortgage Guarantee Scheme could be the boost you need. Mortgages by McAteer are here to help make the process easier and help you get a mortgage deal that will suit you.
We spend time getting to know you and your property goals. By finding out about your income, spending, lifestyle and ambitions we can find the most suitable 95% mortgages. We’ll explore all the relevant lenders and their products, compare rates and fees and talk you through the pros and cons of a high loan-to-value mortgage.
We’ll also explore other government Help to Buy initiatives to see if these could save you money. We love to help people achieve their property plans and will help you at every step – from making an offer to collecting the keys to your new home.
YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP WITH YOUR MORTGAGE REPAYMENTS. SOME BUY TO LET MORTGAGES ARE NOT REGULATED BY THE FINANCIAL CONDUCT AUTHORITY.