5% Deposit – The Mortgage Guarantee Scheme

In March 2021 the UK government launched a new mortgage scheme to help people get on the property ladder. The Mortgage Guarantee Scheme brings back 5% deposit mortgage deals – could this help you buy your first home? 

What is the Mortgage Guarantee Scheme? 

The Mortgage Guarantee Scheme has been brought in by the government to make it easier to buy a home.

The scheme aims to address a big drop in mortgage lenders offering 95% loan-to-value mortgages. The pandemic had made banks and building societies more cautious about offering loans with a small deposit. 

But house prices are now at an average of £230,000, so even a 5% deposit means people need to save up £11,500. A 10% deposit or more is often out of reach for many potential homebuyers. 

Under the new scheme the government has promised mortgage lenders financial support to offer 95% mortgages. If a customer is unable to pay back their loan, the government will absorb some of the loss. A similar initiative launched in 2013 after the financial crisis. 

How does the Mortgage Guarantee Scheme work? 

From a customer point of view, there is little impact other than there will be more 95% loan-to-value mortgages on the market. Another positive is that lenders joining the scheme have to offer customers a five-year fixed rate mortgage deal. 

A fixed rate mortgage gives you better security, because monthly payments don’t rise or fall in line with the base interest rate. Having a consistent repayment makes it easier to manage your money. 

The first lenders to announce new mortgage products under the scheme were Lloyds, NatWest, Santander, Barclays, HSBC and Virgin Money. The new 95% LTV mortgages will be available between early April 2021 and 31 December 2022. 

Are there any restrictions under the scheme? 

These mortgages only apply on residential properties (not Buy to Let), that are being bought by individuals rather than companies. All mortgages must be repayment products, so there are no interest-only deals. 

The maximum property purchase price is £600,000, and mortgages are at 91% to 95% loan-to-value – which means you need a deposit of 5% to 9% of the property value. 

Will I need a good credit score for a Guaranteed Mortgage? 

A mortgage lender will always check your credit record as part of the approval process. They are looking for reassurance that you will reliably repay the loan. 

Your credit history doesn’t have to be immaculate, however. Each lender has its own guidelines on what they find acceptable. Older, settled debts may not affect your application. 

If you have more serious credit issues, talk to a Mortgage Broker like Spot On. We will be able to advise on the most appropriate options for your exact circumstances.

How much could I borrow with a Guaranteed Mortgage? 

Lenders will decide how much to offer you based on your income, deposit and monthly spending. A rough guide is that you can borrow around four times your income – use a mortgage calculator to get an estimated total. 

You can also see what the monthly mortgage repayments will look like for different property prices. A 95% mortgage means you will have higher repayments than you would with a bigger deposit. 

Every lender is different, so it makes sense to compare mortgage rates and fees across a few providers to find the most affordable deal. 

What other fees will I need to pay? 

When you buy a home you will need to pay for solicitors, searches and surveys. You will usually also need insurance products like life insurance and buildings cover. 

You have probably heard of the property tax called stamp duty – but if you are a First Time Buyer you are potentially exempt from this. 

Stamp duty has reduced in response to the Covid-19 pandemic. The duty is currently due only on houses valued at £500,000 and over, but the threshold is expected to reduce to £250,000 at the end of June and return to £125,000 at the end of September 2021. 

How can a Mortgage Broker help? 

If you think that the Mortgage Guarantee Scheme will be a helpful route in buying a home, we can help you explore the options. 

As specialist mortgage experts, Spot On are here to make buying a property less complicated. We’ll spend time getting to know you so that we can find the most suitable 95% mortgages for your unique situation. We’ll compare rates, fees and lending criteria across a range of mortgage providers, and explain all the opportunities and risks of high loan-to-value mortgages. 

We’re registered in England and Wales and our Principal is authorised and regulated by the FInancial Conduct Authority. Contact our registered office today for an informal chat about how we can help you. 

A mortgage is a loan secured against your home. Your home may be repossessed if you do not keep up repayments on your mortgage.