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The Mortgage Guarantee Scheme is a government initiative unveiled in the March 2021 budget. It’s a move to help people in England and Wales get on the property ladder, now that fewer lenders are offering mortgages with low deposits.
What is the Mortgage Guarantee Scheme?
The Mortgage Guarantee Scheme gives eligible borrowers a government-backed guarantee so they can buy a home with a 5% deposit. The mortgage product involved is a 95% loan-to-value mortgage.
The scheme is based on a similar initiative launched in 2013 in the wake of the financial crisis. This proved very successful in supporting people onto the property ladder, and works by the government providing security to lenders. If a customer were to default on a loan, the government would step in and repay some of the lost money back to the lender.
Importantly, the lender taking advantage of the scheme must offer the customer a five-year fixed rate mortgage deal. With a fixed mortgage, your payments stay the same every month, rather than fluctuating in line with national interest rates.
Are there any restrictions under the scheme?
The mortgage must be a residential one, not a Buy to Let, and taken out by an individual rather than a company. The property must have a purchase value of £600,000 or less with a 91 to 95 per cent loan to value – which means you will need a 5 to 9% deposit.
It must also be a repayment mortgage, not interest-only.
Do I still need to have a good credit history to obtain a Help to Buy Guaranteed Mortgage?
Yes, lenders will need you to meet certain credit score criteria. You might not need to have a completely clean credit history – every lender has different guidelines on this.
If you need to improve your credit rating, look at the records that the credit agencies hold on you. If there are any errors, getting them corrected will improve your rating. You should also check you’re on the electoral roll, as this is a basic credit requirement.
How much will I be able to borrow?
The amount you can borrow will depend on the size of your deposit and the lender’s criteria. Using a mortgage calculator will give you an idea of your target property value, depending on your deposit.
Work out what your monthly mortgage repayments will be, too, and make sure these will be affordable. The mortgage guarantee scheme supports lenders, not buyers, so if you fall behind with your payments you could lose your home.
It’s worth exploring interest rates across a few lenders, as these can vary a fair amount. Many high street and specialist lenders will offer 95% mortgages under the guarantee scheme.
What other fees will I need to pay?
There are various other fees and payments required when you buy a home. If you are a First Time Buyer, you will not need to pay any stamp duty.
At the moment stamp duty is only due when house prices reach £500,000, but this will reduce to £250,000 at the end of June and revert to the £125,000 threshold at the end of September 2021.
All home buyers need to pay for solicitors, searches and surveys as part of their purchase, and many mortgage lenders will require an arrangement fee as part of the deal.
You will also need to pay for life insurance and buildings insurance, and there may be other protection products that could be valuable to you.
How can a Mortgage Broker help?
Getting a Mortgage Broker on board will really improve your experience of buying a home. At Blue Pepper, we’re experts who specialise in mortgages, and we will help you at every step.
Our advisors make buying a home less stressful. By spending time with you we can explore the most suitable 95% mortgages for you. We’ll compare rates and fees, as well as lending criteria, and recommend a mortgage that will match your budget.
We can also help you explore other Help to Buy options that might work for you. The world of mortgages can be confusing and sometimes overwhelming, especially for a First Time Buyer. Let us do all the hard work for you so that you can achieve your property goals.
Because we are an appointed representative of PRIMIS Mortgage Network. PRIMIS Mortgage Network is a trading style of First Complete Ltd which is authorised and regulated by the Financial Conduct Authority, you can trust us to take away the hard work of finding a mortgage to suit you.