Mortgage guarantee scheme: Your questions answered

Thanks to the pandemic, mortgage lending for buyers with minimal deposits mostly dried up in 2020. However, thanks to the new mortgage guarantee scheme, mortgage products with only 5% deposits are back in action. Read on to find out if this government-backed scheme can help you.

What is a mortgage guarantee scheme?

A mortgage guarantee scheme is an agreement that the government will pay your mortgage to the mortgage provider if you are unable to. This protects the lender from loss of profits, and protects you from being evicted.

Under the scheme, if the government needs to step in to pay your mortgage, you then work out a separate repayment programme with them. At the same time, the government pays off your original mortgage with the lender.

What is the new mortgage guarantee scheme 2021?

The latest mortgage guarantee scheme was introduced in 2021. It guarantees mortgages up to 95% loan to value (LTV). This means you only need a 5% deposit to secure the mortgage. The maximum deposit you can have under the scheme is 9%.

Who is eligible for the mortgage guarantee scheme?

The 2021 mortgage guarantee scheme is open to both first-time buyers and existing homeowners. To qualify, you must be able to prove you are capable of making the mortgage repayments. This means you have to show proof of a stable income and a good credit rating.

Is the mortgage guarantee scheme only for new builds?

The latest mortgage guarantee scheme applies to both new builds and older properties. As long as the value of the property you want to buy is below £600,000, it is eligible for the scheme.

While most schemes focus on new homes, this one is designed to help anyone get onto the property ladder, whatever kind of home they want to buy.

Why was the new mortgage guarantee scheme introduced?

The government introduced the new mortgage guarantee scheme because the pandemic significantly reduced the availability of 5% deposit mortgages. Most lenders became much more cautious in their lending, meaning that buyers who couldn’t raise a large deposit couldn’t secure mortgages.

The scheme’s designers want to encourage mortgage providers to start lending at the minimum deposit level again.

How long will the mortgage guarantee scheme last?

The mortgage guarantee scheme will remain open until December 2022. If you secure a mortgage under this scheme, the government will guarantee your mortgage for up to 7 years after the agreement is signed.

Which banks offer the mortgage guarantee scheme?

At the time of writing, six major banks offer 95% LTV mortgages under the government’s mortgage guarantee scheme. They are:

LloydsNatWestSantanderBarclaysHSBCVirgin Money

How do I apply for the mortgage guarantee? 

You can apply for the government-backed mortgage guarantee scheme in the same way you would a normal mortgage. You can either apply directly through any participating lender, or contact a mortgage broker to find the best available deals on your behalf.

Is the new mortgage guarantee scheme worth it?

Getting a mortgage under the new guarantee scheme will not make any difference to the money of money you pay for your product. However, if you already planned to buy a property with a 5-9% deposit, then you will currently be able to enjoy a greater variety of mortgage products thanks to the scheme. It has opened up the 5% deposit mortgage market again, so you will find it significantly easier to secure a mortgage at this deposit level.

However, be aware that the bigger the deposit you can raise, the better the mortgage deals will be. If you can stretch to a 10% deposit, you’ll be able to access mortgages with lower interest rates.

Will the mortgage guarantee scheme be extended? (27th October, 2022 Update)

At the time of writing (27th October, 2022), there is no plan to extend the government’s mortgage guarantee scheme beyond the 22nd December deadline. The previous UK Chancellor, Kwasi Kwarteng, was considering extending it, but was then sacked by Liz Truss days before she was herself removed from office.

Currently, new Chancellor Jeremy Hunt has made no mention of extending the scheme.

Are 95% mortgages ending?

It is impossible to say whether 95% mortgages will stop being available after 22nd December. However, if the government does not extend the mortgage guarantee scheme, lenders will be far less likely to keep offering this kind of mortgage product.

If you want a more in-depth guide to getting a mortgage, check out the article linked below. Similarly, if you need to know more about loan-to-value, help-to-buy or other home purchasing schemes, our dedicated guides can help.

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