Since the Covid-19 pandemic struck many mortgage lenders withdrew their high loan-to-value (LTV) products, leaving first-time buyers with smaller deposits unable to access mortgage products that were previously available. Thankfully the importance of supporting first-time buyers was recently acknowledged by the government. As part of the Spring Statement, the Chancellor, Rishi Sunak, announced the government’s new mortgage guarantee scheme.
What is the Mortgage Guarantee Scheme?
From a buyer’s perspective the scheme, which went live April 19th, should offer more availability of the highly sort after 95% loan-to-value mortgage products.
For banks and building societies the government says its scheme will provide lenders with the option to purchase a guarantee on the top-slice of the mortgage. In real terms, what this means is that the government will compensate the mortgage lender for a portion of the net losses suffered in the event of repossession. The guarantee will apply down to 80 per cent of the purchase value of the guaranteed property.
What eligibility criteria do I need to meet?
In the wake of the pandemic, the scheme has been designed to support those struggling to save for the higher mortgage deposits as a result of the current economic climate.
The government states the following criteria for a mortgage to be eligible under its scheme:
• Be a residential mortgage (not for a second home) and not buy-to-let
• Be taken out by an individual or individuals rather than an incorporated company
• Be on a property in the UK with a purchase value of £600,000 or less
• Have a loan-to-value of between 91 per cent and 95 per cent
• Have originated between the dates specified by the scheme
• Be a repayment mortgage and not interest-only
• Meet standard requirements in terms of the assessment of the borrower’s ability to pay the mortgage, for example a loan-to-income and credit score test
Is the scheme for first-time buyers only?
No, unlike the current Help To Buy: Equity Loan which is exclusive to first-time buyers, this scheme is available to all house buyers provided the home they’re buying is below the £600,000 threshold.
Therefore, the scheme, which will be open to new applications until December 2022, could see a number of first-time buyers take advantage, as well as those wishing to trade up the property ladder. The latter utilising a larger loan to buy a more expensive property than they would otherwise have the capital to purchase.
It remains to be seen how diverse or effective the new 95% mortgage products prove to be, but history dictates that a buoyant first-time buyer market is invariably good for the property market as a whole, and the proposition of a 5% deposit should allow a much larger pool of individuals to fund that challenging first property purchase.