What is the Mortgage Guarantee Scheme?

Whilst the mortgage industry at large has been fairly resilient to the impact of the coronavirus pandemic, a general loss in lender confidence led to a dramatic decline in high Loan to Value mortgage availability throughout 2020. In April 2021, The Mortgage Guarantee Scheme will be launched in an attempt to encourage Mortgage Lenders back to high Loan to Value lending.

The government scheme is expected to be available until at least 30th June 2025 and is intended to increase help the younger generation buy homes more easily. First Time Buyers have been the hardest hit from the lack of lenders offering 95% mortgages, given that overall, they are the demographic struggling most to save larger deposits. In addition to helping young people get onto the property ladder as First Time Buyers, the scheme is actually available to all creditworthy mortgage applicants.

How Does It Work?

Mortgage lenders offering 91%-95% Loan to Value mortgages are entitled to a government guarantee

Lenders offering high Loan to Value mortgages (91-95%) with a Fixed-rate interest period of at least five years, can purchase a mortgage guarantee from the government under the Mortgage Guarantee Scheme. This protects them against significant financial losses that they may incur from this level of lending.

Whilst the guarantee protects the lender in the event that your home is repossessed, you should be aware that it offers you no protection as the borrower. The main benefit for borrowers being general availability of higher Loan to Value mortgages, especially at a time where house prices are beginning to rise.

Does not incentivise irresponsible lending

A clause exists within the scheme’s policy that holds lenders liable for 5% of any losses incurred. This is to discourage lenders from offering unaffordable mortgages.

What Qualifying Criteria are There For The Mortgage Guarantee Scheme?

In order to offer mortgages under the guarantee scheme, Mortgage Lenders must:

• Only offer mortgages must be residential and for a first/only home (not Buy-to-Let)
• Offer only to individuals, not incorporated companies
• Ensure properties cost no more than £600,000 and are UK based
• Offer a Loan to Value of 91% to 95%
• Only establish mortgages under the scheme between April ‘21 – June ‘25
• Ensure only repayment mortgages are offered
• Subject all applicants are to affordability and credit score tests

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, meaning that you’ll still need to meet the lender’s acceptance criteria. This always entails at least affordability and credit checks, as well as any additional criteria individual lenders may have.

How Do I Improve My Credit Rating?

It’s important to be aware of your credit score before you make a mortgage application. Checking your credit score online with a credit reference agency is fairly easily done. If you discover a need to improve your score:

• Ensure all information held on your file is correct
• Cancel old accounts and remove old addresses
• Check you appear on the electoral roll at your current address
• Pay off any outstanding debts
• Don’t take on any additional credit agreements

What Fees Will I Need to Pay?

Stamp duty

Property purchases of £250,000 or above in the UK are usually liable for Stamp Duty Land Tax. First time buyers will pay no Stamp Duty Land Tax on properties worth up to £425,000, on any property purchase above £425,000, you will pay 5% stamp duty.

Other fees

Mortgage calculators can be a helpful way to plan your future mortgage payments and some also show the fees involved with purchasing a home. At the time of application you should be prepared to pay solicitors fees, mortgage arrangement fees and fees for searches and surveys on your new property.

How Can The Mortgage Centre Help?

At The Mortgage Centre, our friendly Mortgage Brokers have access to a wide variety of Mortgage Lenders. This means we can easily find those lenders who are offering 91-95% mortgage deals, under the new guarantee scheme, for you.

If you’ve been struggling to borrow the amount that you need, now is the time to have another look at what’s available. We can also ensure that you take advantage of the longer Fixed-term mortgage rate periods currently available so that your new home is not only easier to attain, but easier to maintain in the long term.