Mortgage Guarantee Scheme
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5% Deposit – The Mortgage Guarantee Scheme
What is the Mortgage Guarantee Scheme?
As a response to the significant drop in new mortgages taken by those with a small deposit availability in 2020, the government has announced a new Mortgage Guarantee Scheme, to encourage lenders to offer higher Loan to Value lending. The reduction of lenders offering 95% mortgages was a direct result of their loss in confidence due to job losses and furlough throughout the coronavirus pandemic. The scheme launches in April 2021 and is available until December 2022.
The overall goal is to enable this generation of First Time Buyers a route onto the property ladder, without the need for a large deposit. Whilst predominantly aimed at First Time Buyers, the scheme is available to all creditworthy mortgage applicants looking for a residential home.
How does it work?
Allows lenders to obtain a government-backed guarantee for applicants applying for a 91% or higher Loan to Value mortgage
As a part of the Mortgage Guarantee Scheme, the government offers a guarantee to the lender in return for offering mortgage products to borrowers at 91-95% Loan to Value. They are also required to have a Fixed-rate period of at least five years.
It’s important to realise that whilst the guarantee protects your Mortgage Lender in the event your home is repossessed, it offers no protection to the borrower. The main benefit for borrowers is general availability of 90% mortgages and above, meaning you require less deposit in order to apply for a mortgage. It also offers stability in the form of a five year fixed-rate term, which is helpful in budgeting for the future. A mortgage calculator should give you some idea of what your repayments would look like.
Does not incentivise irresponsible lending
As similar schemes in the past have led to irresponsible lending, the government have included a clause in the policy, holding lenders liable for 5% of any losses incurred as a result of their lending.
What qualifying criteria are there for the Mortgage Guarantee Scheme?
To be eligible for the Mortgage Guarantee Scheme, all mortgages must meet the following criteria:
- be for a residential mortgage for a first and/or only home (not Buy-to-Let)
- Only offered to individuals (no incorporated companies)
- The property must be in the UK and valued at £600,000 or less
- Must be a high LTV Mortgage with a Loan to Value of 91-95%
- Has to begin between the dates specified by the scheme (April ‘21 – Dec ‘22)
- Must be a repayment mortgage, not Interest-only
- All applicants must be subjected to affordability and credit score test
Do I need a good credit history to access a 95% mortgage via the Mortgage Guarantee Scheme?
The scheme is intended to help people obtain a 95% loan more easily, however, the government guarantee is based on responsible lending. Therefore you will still need to meet the lender’s acceptance criteria for a standard residential mortgage, which will include both affordability and credit score checks. Lenders will usually be looking for a high credit score in order to lend at this level.
How do I improve my credit rating?
It’s always recommended that you look into your credit score with a credit reference agency, prior to making a mortgage application. To improve your score, check that all information held about you is correct and that you are on the electoral roll at your current address. You should also take every step to reduce debts and don’t apply for further credit.
As well as increasing your overall chance of securing a mortgage, a higher credit score can give you access to better mortgage rates.
What other fees will I need to pay?
Stamp Duty is usually due on all UK property sales priced at over £300,000. The current suspension of Stamp Duty tax on properties up to the value of £500,000, however, has been increased until the end of June 2021.
Our Mortgage Brokers can help you plan for these costs, which will vary from firm to firm, however, you should plan to pay solicitors fees, mortgage arrangement fees and the cost of searches and surveys on your new property.
How can Fancy a Mortgage help?
At Fancy a Mortgage, we have access to a broad spectrum of both high street and independent Mortgage Lenders. We keep abreast of which lenders are offering high Loan to Value mortgages under the new Mortgage Guarantee Scheme. Our goal is to ensure you are able to find those lenders with the most suitable deals for you and to help you make the most of the lengthy Fixed-rate terms available.
Your home may be repossessed if you do not keep up repayments on your mortgage.