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95% mortgage guarantee scheme

95% mortgage guarantee scheme

Find out how the mortgage guarantee scheme works and whether it could help you buy your next home with a 5% deposit.

What is the mortgage guarantee scheme?

The mortgage guarantee scheme, launched on 1 April 2021, involves the government ‘guaranteeing’ 95% mortgages for buyers with 5% deposits. The scheme was announced in the March 2021 Budget and is designed to encourage banks to start offering 95% mortgages again, after nearly every single one was withdrawn during the pandemic. Under the terms of the scheme, the government guarantees the portion of the mortgage over 80% (so, with a 95% mortgage, the remaining 15%). This might sound complicated, but in practice it just means the government will partially compensate the lender if a homeowner defaults on (fails to pay) their mortgage. The scheme is quite similar to the Help to Buy mortgage guarantee scheme, which ran from 2013 to 2016 and was used by 105,000 buyers.

Why has the government launched this scheme?

Since the start of the Covid-19 pandemic in March 2020, the number of low-deposit mortgages has plummeted. In just under a year, the number of 95% mortgages available to first-time buyers fell from 391 to just three, as lenders shied away from riskier loans. The scheme aims to give banks the confidence to offer 95% mortgages again by taking on some of the risks involved with doing so.

Who is eligible to apply?

The mortgage guarantee scheme is available to first-time buyers and home movers across the UK. You’ll need to be buying a property to live in yourself – second homes and buy-to-let properties are not permitted. Both new-build and existing properties priced up to £600,000 are eligible. You’ll need to apply for a repayment (not interest-only) mortgage and pass standard affordability checks, including a loan-to-income test and credit score assessment. Finally, the mortgage you’re applying for will need to be for between 91% and 95% of the value of the property you’re buying, which you’ll see described as ‘LTV’. The scheme will initially run until 31 December 2022, though this will be reviewed before the end date.

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