Launched in April 2021 the government has announced that the mortgage guarantee scheme has been extended by a year to the end of December 2023, helping more people with 5% deposits onto the property ladder.
Recap: What is the Mortgage Guarantee Scheme?
The mortgage guarantee scheme is a government-backed scheme aimed at providing support for people looking to purchase a home with a small deposit. The scheme offers lenders a guarantee on a portion of the mortgage, making it possible for borrowers to secure a mortgage with a deposit of as little as 5% of the property’s value.
This is intended to help first-time buyers and other borrowers who might otherwise struggle to get a mortgage due to a lack of available funds for a large deposit. The scheme was announced in the 2021 UK Budget and was launched in April 2021.
Has it been successful?
According to the government the scheme has already helped over 24,000 households (up to November 2022).
As well as first-time buyers and current homeowners, the scheme has also helped support the wider housing sector. Lenders reduced the availability of high Loan-to-Value (LTV) products during the Covid-19 pandemic, with just eight 95% LTV products available in January 2021.
The government’s mortgage guarantee scheme helped restore competition and consumer choice to the market, which has benefited businesses and boosted the market.
Who is eligible?
The mortgage guarantee scheme is available to anyone looking to purchase a residential property in the UK with a mortgage of up to £600,000. However, there are some eligibility criteria that borrowers must meet to qualify for the scheme. These include:
- The property must be the borrower’s primary residence, and not a second home or buy-to-let property
- The borrower must have a deposit of at least 5% of the property’s value, up to a maximum of 95%
- The borrower must pass affordability checks and satisfy the lender’s other lending criteria, such as credit history and income
- The scheme is available to both first-time buyers and home movers
- The scheme is available for both new-build and existing properties
It’s worth noting that the scheme is only available until December 2023, and it’s up to each lender to decide whether or not to offer mortgages through the scheme.
Additionally, borrowers will still be responsible for making mortgage payments and complying with the terms of the mortgage agreement.
How do I find a mortgage available on the mortgage guarantee scheme?
To find a mortgage available on the mortgage guarantee scheme, you should start by contacting a mortgage broker or directly approaching a lender that offers mortgages through the scheme. Not all lenders participate in the scheme, so it’s important to check with the lender before you apply for a mortgage.
You can also use comparison websites to search for mortgages available under the scheme. These websites allow you to compare different mortgages and their interest rates, fees, and other terms. When using a comparison website, be sure to check if the mortgages displayed are available under the mortgage guarantee scheme.
In addition, the government has a website called Own Your Home that provides information on the different government schemes available to help people buy a home, including the mortgage guarantee scheme.
Once you have found a lender or a mortgage broker, you can discuss your eligibility for the scheme and the various mortgage options available. It’s important to compare the interest rates, fees, and other terms of different mortgages to find the one that is most suitable for your needs and circumstances.
What interest do you pay?
The mortgage guarantee scheme is not a mortgage product in itself, but rather a scheme that enables borrowers to access mortgages with a smaller deposit. As such, the interest rates charged on mortgages under the scheme will be determined by the individual lenders who participate in the scheme.
In general, when it comes to mortgages the interest rates charged are influenced by a range of factors, including the borrower’s credit history, income, and deposit size. Borrowers with a larger deposit may be able to access more favourable interest rates, while those with a smaller deposit may face higher interest rates.
Therefore, it’s always advisable to speak to a mortgage broker to find out what mortgage would best suit your circumstances.
What other schemes are there?
There are several UK government schemes that can help people get onto the housing ladder, in addition to the mortgage guarantee scheme. These include:
- Help to Buy: Equity Loan: This scheme provides a government loan of up to 20% of the property’s value (40% in London) to eligible buyers of new build properties. This reduces the size of the deposit required and can make homeownership more affordable. However, this scheme is now closed to new applicants and will formally come to an end by the 31st of March 2023
- Shared Ownership: This scheme allows buyers to purchase a share of a property (typically between 25-75%) and pay rent on the remaining share. Buyers can increase their share over time, which can help them eventually buy the property outright
- Right to Buy: This scheme enables eligible council and housing association tenants to purchase their homes at a discount. This can be a good option for people who have been renting a property for a long time and want to become homeowners.
- Lifetime ISA: This scheme allows people aged 18-39 to save up to £4,000 a year towards their first home, with the government adding a 25% bonus to the savings. The savings can be used towards a deposit on a home worth up to £450,000
- Rent to Buy: This scheme is aimed at helping people to save for a deposit while renting a property. A portion of the rent paid goes towards a deposit, which can be used to buy the property after a set period of time
- First Homes: This is one of the newer schemes that was launched in 2021, aimed at helping local people buy a home in their area. Eligible buyers can receive a discount of at least 30% off the market price of a new-build property
Overall, these schemes are designed to help people overcome the financial barriers to homeownership and make it more accessible to a wider range of people.
The mortgage guarantee scheme was aimed at increasing access to homeownership and helping people to take their first steps on the property ladder. The scheme offers several benefits for borrowers:
- Accessibility: The scheme makes it possible for borrowers with a small deposit to secure a mortgage, allowing them to enter the housing market and purchase a home
- Affordability: By enabling borrowers to make a smaller deposit, the scheme can reduce the amount they need to save, making homeownership more affordable
- Competition: The scheme has helped to increase competition among lenders after the higher LTV mortgage product withdrawals from many high street lenders in the wake of covid-19
With limited other government schemes, available first-time buyers and those with limited affordability could use the mortgage guarantee scheme as a springboard to owning a property that suits their needs.
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