5% Deposit Mortgage Guarantee Scheme

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5% Deposit - The Mortgage Guarantee Scheme

In the March 2021 Budget, Chancellor Rishi Sunak unveiled a new mortgage scheme to make it easier for people to get on the property ladder. The Mortgage Guarantee Scheme means there are more 5% deposit mortgage deals – could it help you buy your first home?

What is the Mortgage Guarantee Scheme?

The Mortgage Guarantee Scheme addresses a major drop in mortgage lenders offering 95% loan-to-value mortgages – where the buyer only needs a 5% deposit. Because of the Coronavirus pandemic, banks and building societies had become wary of offering small deposit mortgages. 

House prices are now at a £230,000 average, however, so a 5% deposit means saving up £11,500. The standard 10% deposit minimum is out of reach for many people. 

The Mortgage Guarantee Scheme is a financial promise to mortgage providers to encourage them to sell 95% mortgages. If a customer cannot 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?

In a nutshell, the scheme simply means that there will be more 95% loan-to-value mortgages on the market. A key benefit of the initiative is that participating lenders must offer customers a five-year fixed rate mortgage deal. 

Fixed rate mortgages mean better security, as monthly payments don’t change in line with the base interest rate. Steady repayments make it easier to manage your money.

The first mortgage products to be announced are from Lloyds, NatWest, Santander, Barclays, HSBC and Virgin Money. They will be available from early April 2021 until 31 December 2022.

What are the rules of the scheme?

These mortgages are for residential properties, not Buy to Let, and not second homes. They are all repayment mortgages; there are no interest-only deals. 

The maximum property purchase price is £600,000, with mortgages at 91% to 95% loan-to-value – so you will need a deposit of 5% to 9%. Mortgages under the scheme are open to both First Time Buyers and home movers

Do I need good credit for a Guaranteed Mortgage?

Checking your credit record is an important step in the approval process. Lenders want to feel confident that you will reliably repay the loan. 

Your credit history doesn’t usually have to be immaculate, though. Each lender has its own guidelines on what they find acceptable. A late payment on your credit cards will be seen less seriously than a County Court Judgement or bankruptcy.

If you have credit issues, talk to a Mortgage Broker like Pia Financial Solutions. We can advise on your specific situation. 

How much could I borrow with a Guaranteed Mortgage?

For any mortgage your loan amount is based on your income, outgoings and deposit. You can usually borrow around four times your income, depending on the lender’s criteria. 

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

How does the Mortgage Guarantee Scheme work with other Help to Buy initiatives?

The 2013 Mortgage Guarantee Scheme was part of a government programme called Help to Buy. Various Help to Buy initiatives are still available and include:

Help to Buy Equity Loan: Available on new build homes, this scheme helps you put down a 20% deposit on a home. If you have a 5% deposit you can gain a further 15%, interest free for five years as a loan. You will then need to find a mortgage for the rest of the value. 

Help to Buy Shared Ownership: Here, you buy a 25% to 75% share in a home via a mortgage, paying rent on the remainder. You can increase your share over time. 

Right to Buy: If you’ve been a council or housing association tenant for several years, you could have the Right to Buy a home with a discount. 

How can a Mortgage Broker help?

If you think that the Mortgage Guarantee Scheme might be the lifeline you need to buy a home, let Pia Financial Solutions help you explore the options. We’re here to make buying a property simpler. 

By getting to know you we can find the most suitable 95% mortgages for your personal circumstances. We’ll compare rates, fees and lending criteria across the relevant mortgage providers and recommend the most appropriate options. You can also be confident that you’ll fully understand the benefits and risks of high loan-to-value mortgages.