5% Deposit – The Mortgage Guarantee Scheme

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What is the Mortgage Guarantee Scheme?

In 2020, the number of mortgage lenders offering 95% mortgages fell dramatically, as a result of a loss of lender confidence, in the wake of the pandemic. Launched in April 2021, the Mortgage Guarantee Scheme is intended to address this issue and encourage mortgage lenders to offer high Loan to Value loans again. The government scheme is expected to be available until at least December 2022.

As First Time Buyers are the group most affected by the lack of high Loan to Value mortgages, due to having a lower overall ability to offer substantial deposits in order to buy a home, they’re expected to benefit most from this scheme. Lenders are able to offer high Loan to Value mortgages under the scheme to all creditworthy mortgage applicants. With house prices beginning to rise, this will be welcome news for all those who have faced large deposit requirements over the past twelve months.

How does it work?

Mortgage lenders offering 91% or higher Loan to Value mortgages are entitled to a government guarantee

For the borrower, a mortgage application under this scheme won’t differ too much from a standard residential mortgage application. The lender, however, can buy a mortgage guarantee under the scheme to protect them against losses that they may incur from offering you the loan. 

The mortgage lender will need to meet a range of criteria to qualify, the predominant ones being that the mortgage must be offered at 91-95% Loan to Value. Whilst the guarantee protects the lender in the event that your home is repossessed, it’s important to understand that it offers no protection to you as the borrower.

Does not incentivise irresponsible lending  

To ensure lenders comply with responsible borrowing, a clause exists within the policy that holds lenders liable for 5% of any losses incurred.

What qualifying criteria are there for the Mortgage Guarantee Scheme?

The full list of criteria mortgage lenders  must meet in order to offer mortgages under the guarantee scheme:

  • Mortgages must be residential and for a first/only home (not Buy-to-Let)
  • They can only be offered to individuals, not incorporated companies
  • Mortgaged properties must be valued at £600,000 or less and be in the UK
  • The Loan to Value has to be between 91% and 95%
  • The mortgage must begin within the scheme’s duration (April ‘21 – Dec ‘22)
  • Must be a repayment mortgage
  • All applicants are to be subjected to affordability and credit score tests

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

As the Mortgage Guarantee Scheme is based on responsible lending, you’ll need to meet the lender’s acceptance criteria, which will include affordability and credit checks. As well as helping you secure a mortgage, a strong credit score will also give you access to more attractive interest rates.

How do I improve my credit rating?

You can check your credit score with a credit reference agency fairly easily online.. 

Lenders use your credit report to get information on how reliable you have been paying back debts in the past. Your credit history might affect the type of mortgage you can attain. This will take into account how responsible you have borrowed in the past. Special introductory rates and other attractive mortgage rates may only be available for those whose credit history meets certain criteria.

Things that can help improve your creditworthiness include making payments on loans, credit cards and bills on time each month. You should also make sure you are on the electoral register so that lenders can verify your address.

When you make an application for credit, it’s reflected in your credit report as a “credit search”. If you make lots of applications, it may suggest to lenders that you are reliant on credit. So, if you plan on applying for a mortgage it might be helpful to be selective above what other loan applications you make.  

Stamp duty

You must pay Stamp Duty Land Tax (SDLT) if you buy a property or land over a certain price in England and Northern Ireland.

The government can and do change the rules from time to time. Up to date rules can be found on : https://www.gov.uk/stamp-duty-land-tax

Neither What Life or PRIMIS Mortgage Network is responsible for the accuracy of the information contained within the linked site

Other fees

Some mortgage calculators can help you to plan for the fees you’ll need to pay when you take out a mortgage, as well as your mortgage payments. On top of the deposit, at the time of application, you should expect to pay solicitors fees, mortgage arrangement fees and fees for searches and surveys on your new property. You may also budget for removals fees and additional surveys on the property. 

How can What Life Mortgages help?

Here at What Life, our Mortgage Brokers can help you to find those lenders who are re-introducing high Loan-to-Value lending. So if you’ve only got a small deposit available, don’t be deterred, through the new scheme we can help you to source a mortgage deal that suits your circumstances. We can ensure to give you great advice helping you make your next home move as safely as possible.