The Mortgage Guarantee Scheme

What is the Mortgage Guarantee Scheme?

Available from April 2021, The Mortgage Guarantee scheme is a government response to the dramatic reduction in mortgages secured by applicants with a lower deposit in 2020. It’s main goal is to encourage lenders to reintroduce higher Loan to Value lending, following the mortgage industry’s loss in lending confidence throughout the coronavirus pandemic. It’s expected to be available until December 2022. It’s reported that the vast decline in lenders offering 95% mortgages has affected First Time Buyers most significantly, as those renting often find it more difficult to save a large deposit. The scheme will be available to all creditworthy mortgage applicants looking for a new residential home, however, and is not reserved exclusively for First Time Buyers.

How does it work?

Lenders obtain a government guarantee on 91% or higher Loan to Value mortgages The guarantee can be taken out by any Mortgage Lenders offering mortgage deals to borrowers at 91-95% Loan to Value, with mortgage rates fixed for a period of at least five years.The guarantee protects Mortgage Lenders from incurring significant losses if your home is repossessed, although it’s important to be aware that it offers no protection to you. With house prices on the rise, many people are struggling to raise large deposits, however, with this scheme in place, there should be a significant increase in the availability of 91%-95% mortgages, meaning you can secure a mortgage with a deposit as low as 5%. The five year fixed term interest rate will also be beneficial to those on a budget, as it allows for more accurate financial planning. Does not incentivise irresponsible lending To ensure that borrowers are not offered mortgages that they cannot afford and to encourage only responsible lending, there is a clause in the policy of the scheme which means lenders are liable for 5% of any losses incurred.

What qualifying criteria are there for the Mortgage Guarantee Scheme?

In order to offer mortgages via this scheme, Mortgage Lenders must adhere to the following:

• Only offer for a residential mortgage for a first and/or only home (not Buy-to-Let)
• Only individuals are eligible, no incorporated companies
• It must be a UK property valued at £600,000 or less
• The loan must be offered at 91- 95% Loan to Value
• The mortgage should originate between April 2021 and Dec 2022
• Repayment mortgages only, not Interest-only
• All applicants to be subject to affordability checks and a credit score test

Do I need a good credit history to access a 95% mortgage via the Mortgage Guarantee Scheme?

The Mortgage Guarantee Scheme is based on responsible lending, which means that you will still need to meet the lender’s acceptance criteria for a standard residential mortgage. This includes affordability and credit score checks, with lenders requiring a higher credit score in order to offer 90% mortgages and above. How do I improve my credit rating? Before you make a mortgage application, it’s important to check your credit score through a credit reference agency. To improve your score, you should check all information held about you to ensure it’s correct and check that you’re on the electoral roll. It’s also important to reduce any debts and not to apply for any further credit.

What other fees will I need to pay?

Stamp duty You would usually be expected to pay Stamp Duty on UK property sales of over £300,000. The Stamp Duty tax suspension on properties up to the value of £500,000, has been extended until the end of June 2021. Other fees There are a range of fees involved when you buy a home, some mortgage calculators are able to give you an idea of fees, but they will vary from firm to firm. They include solicitors fees, mortgage arrangement fees and the cost of searches and surveys for your new property. Some mortgages may also require that you have property and/or financial protection in place.

How can Choice help?

At Choice, our Mortgage Brokers can help you to find the lenders offering high Loan to Value mortgages under the new Mortgage Guarantee Scheme. We have access to a wide variety of lenders, all of whom update us with new deals as soon as they’re available. We can take the frustrating administrative aspect out of your application, as well as ensuring you only approach those lenders with the most suitable deals for you and who are most likely to accept your application.