5% Deposit Mortgage Guarantee Scheme

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5% Deposit - The Mortgage Guarantee Scheme

A new government scheme will bring more 95% loan-to-value mortgages to the market from April 2021. Could this new initiative help you get on the property ladder?

What is the Mortgage Guarantee Scheme?

This new scheme was announced in the Chancellor’s Budget in March 2021. It aims to address the big drop in small deposit mortgages available in the UK.

Many lenders have stopped offering 95% mortgages as a result of the pandemic, but these products are important to First Time Buyers and other people who have a limited cash deposit.

This new government scheme offers lenders a financial guarantee to encourage them to sell 5% deposit mortgages.

How does the new scheme work?

The scheme will run from April 2021 to December 2022. The first lenders to join it were Lloyds, NatWest, Santander, Barclays, HSBC and Virgin Money.

One of the important aspects of these 95% loans is that participating lenders must offer a five-year fixed rate product. Fixed rate deals are easier for people to budget for as the monthly repayment stays constant. With a variable product, mortgage rates can increase and put your payments up.

Other important rules for these mortgage products are that they are only for residential mortgages, which means not second homes and not buy-to-let. They apply to homes with a purchase price up to £600,000. The loan-to-value must be between 91% and 95%, and it must be capital repayment, not interest-only.

Do I still need good credit for a 95% Help to Buy Mortgage?

Your credit rating is important for any kind of financial borrowing, and because these mortgages have a small deposit, lenders will want extra assurance that you will repay reliably.

A mortgage provider will look at your credit history, income and outgoings to decide whether you are a suitable borrower. Their criteria will vary, so it’s worth understanding what they are looking for.

Very importantly, you need to be certain that you can comfortably afford your monthly mortgage repayments as if you fall behind your home may be repossessed.

If you’re worried about your credit record, speak to us for advice, as some specialist lenders accept people with bad credit. There are different levels of credit issues, ranging from late payments on credit cards through to bankruptcy and IVAs. The severity of your credit issues will affect your borrowing options.

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. Various Help to Buy initiatives are still available and could help you achieve your property plans. These include:

Help to Buy Equity Loan: Available only on new build homes, this scheme will help you put down a 20% deposit on a home. If you have a 5% deposit you can gain a further 15%, interest free for five years as a loan. 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, paying 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 several years, you could have the Right to Buy a home with a discount. The size of the discount increases with the length of your tenancy.

How can a Mortgage Broker help?

If you’re wondering how the Mortgage Guarantee Scheme might help you to buy your first home, we can help you look at the options. These mortgages will also be available to people moving home, as they are open to house prices up to £600,000.

As mortgage experts, we will do the hard work for you, comparing the available mortgage deals from different lenders. We’ll look at the interest rates, arrangement fees and criteria to recommend the most suitable and cost effective mortgage products.

We also take time to explain the risks of a high loan-to-value mortgage so that you can make an informed choice. As you apply for the mortgage and progress your property purchase we’ll be on hand to support you at every step.

Because we are registered in England and authorised and regulated by the Financial Conduct Authority, you can trust us to help you find the right mortgage deal. For an initial chat, contact our registered office today.

Your home may be repossessed if you do not keep up repayments on your mortgage

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