Mortgage Guarantee Scheme
The Mortgage Guarantee Scheme Explained: 95% LTV Mortgages – Mortgage Co
What is the mortgage guarantee scheme and how does it relate to 95% mortgages?
The scheme was announced in the budget and it provides a guarantee to lenders who are willing to offer between 80% and 95% mortgages, which gives them the confidence they need to lend at higher Loan to Value mortgages.
95% mortgages have been available for a long time, but throughout the coronavirus pandemic, a lot of lenders reduced their lending. This drastically increased the deposit requirement for First Time Buyers in particular.
What is the difference between the Help to Buy scheme and the Mortgage Guarantee Scheme?
The Help to Buy scheme is equity based, so you put down a 5% deposit and take an equity loan from the government of 20%. This reduces the risk to the lender as they only have to lend you 75% of the value of that property. Essentially this means that the government owns 20% of your property until you repay them.
With the Mortgage Guarantee Scheme, you own the property entirely but are able to borrow 95% of the cost of the property from the lender. This means you still only need a 5% deposit.
Who is eligible to apply for a 95% mortgage under the Mortgage Guarantee Scheme?
You have to be buying a property to live in, so it can’t be for a second home or Buy to Let. You also need to be creditworthy and meet the specific lender’s criteria.
Which lenders will or are already offering these mortgages?
A number of lenders have signed up for it, but unfortunately, the guarantee was supposed to be effective from the 1st of April 2021, but at the current time, it’s actually not available yet.
Lenders that have signed up to date include:
- Barclays
- HSBC
- NatWest
- Santander
- Lloyds
There are around four lenders currently offering 95% mortgages without the government guarantee scheme and have pledged to underwrite this themselves.
What rates will be available on 95% mortgages?
At the moment it’s difficult to say, as the scheme has been delayed. Those operating 95% mortgages outside of the scheme have mortgage rates at about 4%. This could be a future indicator for lenders operating under the scheme, but again, cannot be confirmed at this time.
Are 90% mortgages still available?
The vast majority of lenders, both high street and specialised, have begun offering 90% mortgages again. In the majority of cases, these 90 % mortgages will have considerably cheaper rates than a 95% mortgage.
Can you get a 95% mortgage on a new build property?
There’s currently only one lender offering 95% mortgages on newbuild properties, but when the scheme is operational, it’s expected that the bigger names, such as Barclays, HSBC, Lloyds, NatWest, or Santander, will begin offering this option on new build properties as well.
Can I take advantage of the Mortgage Guarantee Scheme and the Stamp Duty holiday at the same time?
This is entirely possible. First Time Buyers are unlikely to pay Stamp Duty anyway due to the £300,000 threshold before it’s due. Other buyers and those buying homes over between £500,000 and £600,000 could potentially benefit from both, however, the time scale could cause issues.
Many lenders, solicitors, and local authority have been struggling with an increased workload alongside reduced staff for the past year, which means that the mortgage application process is taking about three or four weeks longer than usual. With the Stamp Duty holiday set to end at the end of June, it will depend on whether you can complete before then.
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Should I save for a bigger deposit?
The higher the amount of deposit you can offer, the lower your mortgage interest rates are likely to be. For a rough idea of how this may benefit you, these are the sort of rates you would typically expect to pay based on despot amounts:
5% deposit – 4% interest
10% deposit – 3% interest
25% deposit – 2% interest
40% deposit – 1.5% interest
*Please note: these are not actual figures, but rough estimates for the purpose of this point.
Lenders will give you a significantly better interest rate with a larger deposit as the borrowing involves significantly less risk to them lending that money. Buyers will always benefit from saving as large a deposit as they can afford to, with the added benefit that this will also mean the applicant will get through a lender’s credit score assessment more easily.
How much can I borrow with a 95% mortgage?
This will be based on each individual applicant’s affordability and the specific lender chosen. The amount that you can borrow should not be affected by the higher Loan to Value lending, so you should still be able to borrow the same amount.
What are the alternatives to the Mortgage Guarantee Scheme other than the Help to Buy Scheme?
The Shared Ownership Scheme, which allows you to buy a percentage of it, 25, 40, 50, 60, or 75% of a property and pay rent on the remaining share. These are more common with housing associations.
There are Guarantor Mortgages or more commonly now, Joint Borrower Sole Proprietor Mortgages. This is where a family member uses their income towards the affordability calculation for the property, but wouldn’t be classed as living in the property.
Should I prepare my credit score for a 95% Mortgage application?
Lenders take a number of factors into account when they credit score a mortgage application. These will generally include whether or not you’re on the voters roll, how long you’ve worked for your present employer, what you do for a living, and how long you’ve lived at your current address. They also check your score with credit reference agencies.
Ideally, your credit score will be as high as possible, as to obtain a 95% mortgage lenders will be looking for a completely clean credit record, whereas for a 75% mortgage you have more chance of being accepted with a less than perfect credit report. Either way, it’s important to know what’s on your credit report before you apply for a mortgage.
What to take when you apply
It’s a good idea to work with a Mortgage Adviser to establish whether you can get a mortgage and what you may be able to afford, to prevent you from looking at properties that you can’t afford.
Ensure that you have ID ready as any Mortgage Broker or lender will need proof of your identity and address. They will also need your last three months’ pay slips and/or last three months’ bank statements.
Contact The Mortgage Co
For more help and advice from the team at The Mortgage Co, you can email, text, WhatsApp, or call and we will do our best to help. We can ensure you find the best rates on the 95% mortgages that are currently available.
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