5% deposit – The Mortgage Guarantee Scheme

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The government has introduced a scheme in which lenders are offered protection in case the property in question ends up being repossessed. The government will cover 80% of the purchase value of the property that is being repossessed to make up for losses and make it so the borrower isn’t as liable. Get in touch with a mortgage broker today to discuss what your mortgage options are today. 

5% deposit – The Mortgage Guarantee Scheme

What is the Mortgage Guarantee Scheme?

The Mortgage Guarantee Scheme launched in April 2021 and will run until December 2022 when the scheme will be reviewed.

The scheme has been put in place to try and stimulate the availability of more low-deposit mortgages on the market. Since the COVID-19 pandemic there has been a noticeable decrease in the amount of lenders offering low-deposit mortgage products to borrowers. It has meant people who would normally be in a position to buy, have opted to rent instead of taking a step onto the property ladder.

The scheme offers protection to the Lender and in the event of the mortgage defaulting, the scheme will cover the portion of the mortgage that is over 80% (with a 95% mortgage, the remaining 15%).

You can access high loan to value mortgages of 91% – 95% with this scheme with a minimum 5% deposit. The products offered as part of the scheme are repayment mortgages, meaning you are repaying both the capital and interest. The rules of the scheme also stipulate that the Lender must offer a 5 year fixed rate option, meaning the monthly payments remain the same for at least the first five years of the loan.

The mortgages will be available from lenders who agree they want to take part in the scheme. It is available to those who already have a mortgage but are moving property as well as those of you who are seeking to buy your first home.

Which lenders are going to be part of the scheme?

Any lender who is authorised and regulated by the Financial Conduct Authority to distribute mortgages in the UK can take part. A few high street lenders and building societies have already confirmed they will be taking part: this includes, Barclays, NatWest, Lloyds Bank and Virgin Money.

It is more than likely more lenders and specialist lenders are going to be taking part and getting involved in the new Mortgage Guarantee Scheme. It would be worth seeking advice from a Mortgage Broker to get an up to date and current view on the mortgage market. It should generate more competition and a rise in “generation buy” rather than “generation rent”.

Do I still need a good credit score to access the Mortgage Guarantee Scheme?

The same checks that are usually carried out for residential mortgages will occur under the scheme. This means that the standard affordability checks will be carried out so you will need to have a good credit history to access the better mortgage rates and lower interest rates too.

You need to ensure that you fit all of your chosen lender’s criteria to maximise your chances of being accepted for a mortgage. A Mortgage Broker can help you find the right lender tailored to your circumstances.

There are a lot of creditworthy individuals continuing to rent as the mortgage deals are not as competitive as they used to be. The scheme aims to stir up the mortgage market and create more competition while offering an easy first step on to the property ladder for first time buyers.

What are the qualifying criteria for the scheme?

There are a few rules when it comes to this new scheme for instance the property that you are seeking a mortgage on has to have a value of less than or equal to £600,000. You must take the mortgage out as an individual and not through a business or company account.

The loan to value on the mortgage needs to be between 91% – 95%, the scheme is only available on new mortgage products and from Lenders who are taking part in the scheme.

Lenders must ensure that the mortgage products offered as part of the scheme are repayment mortgages, meaning you are repaying both the capital and interest. The rules of the scheme also stipulate that the Lender must also offer a five year fixed rate option, meaning the monthly payments remain the same for at least the first five years of the loan.

How can a mortgage expert at Mortgage Co help you?

Mortgage experts at Mortgage Co have an up to date and current view of the mortgage market. There is going to be a lot more competition and you might be wondering how you can get the most benefit out of this new scheme.

You can get in touch with an expert at Mortgage Co today to talk through your options, find lenders that match your needs and receive tailored advice on your mortgage application.

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