The governments 95% mortgage guarantee schemeHi if we haven’t met before, my name is Dan, I am a CeMAP qualified mortgage & protection adviser. This video is purely for educational purposes only, and should not be seen as advice or a recommendation to act and I must stress your home may be repossessed if you do not keep up with the repayments on the mortgage.
With that out of the way, on with the video!
What is the mortgage guarantee scheme?The mortgage guarantee scheme is something the government have put together to help give the mortgage market more confidence and stability.
The mortgage guarantee scheme is due to start in April 2021 and it means the government are ‘guaranteeing’ 95% mortgages for buyers with 5% deposits.
What I mean by this is the government will guarantee the portion of the mortgage over 80% so, with a 95% mortgage, the remaining 15% is guaranteed by the government.
This might sound complicated, but basically, it means the government will partially compensate the lender if a homeowner fails to pay their mortgage.
Why is the government launching this scheme?The scheme has been designed to encourage banks to start offering 95% mortgages again.
Since the pandemic mortgage lenders withdrew the majority of their mortgage products, and at one stage you needed a 35% deposit with the majority of lenders.
Slowly but surely lenders have returned to the market requiring less of a sizeable deposit, with a few now requiring just 10%. But the 5% deposit market was quite popular and has seen a lot of people unable to buy a property.
Who can apply for a 95% mortgage?The mortgage guarantee scheme is open to first-time buyers and home movers across the UK.
You’ll need to be buying a property to live in yourself. You can not use the scheme to buy second homes and buy-to-let properties. Both new-build and existing properties priced up to £600,000 are eligible.
You’ll need to apply for a repayment mortgage and not an interest-only mortgage and pass standard affordability checks, including a loan-to-income test and credit score assessment.
Also, something to note, the mortgage you’re applying for will need to be for between 91% and 95% of the value of the property you’re buying, which you’ll see described as ‘LTV’ which means Loan to Value, so the amount of borrowing against the property value.
The scheme will initially run from April 2021 to 31 December 2022.
Which lenders will offer mortgages under the scheme?The government says that major banks including Barclays, HSBC, Lloyds Bank, NatWest and Santander have all committed to launching 95% deals from April.
Virgin Money and some other lenders look set to follow suit shortly after that.
Under the terms of the scheme, participating lenders will need to offer a five-year fixed-rate mortgage as part of their range. The government says this will give borrowers the security of predictable repayments for a longer period.
What rates will be available on 95% mortgages?As lenders begin to launch their deals, I’ll be able to get a clearer picture of how affordable the rates will be.
Interest rates on 90% mortgages are currently considerably higher than they were before the start of the pandemic, and it is unknown whether the influx of 95% deals will push costs down for first-time buyers.
Alternatives to the mortgage guarantee scheme
Usually the higher the proportion of the property price you borrow, the higher the rate of interest you’ll pay on your mortgage.
For that reason, if you’re able to save for a little longer and apply for a standard 90% mortgage it could be well worth it in the long run.
There are some other schemes that can help you buy a home with a small deposit.
The Help to Buy scheme offers a 20% equity loan (40% in London) from the government on new-build properties in England.
From April, it will be limited to first-time buyers and regional price caps will limit the cost of homes sold under the scheme.
Wales has its own version of Help to Buy, but Northern Ireland and Scotland don’t currently offer it.
If you’re looking to buy a home in an expensive area such as London, a shared ownership scheme could offer you a route on to the ladder.
These schemes involve purchasing a stake of as little as 25% of a property and paying rent on the remainder.
Finally, lenders currently offer a range of guarantor mortgages, which allow a parent or family member to help you buy a home.
Guarantor mortgages usually involve the family member using their home or savings as collateral in case you default on your mortgage, but innovative products such as ‘joint borrower sole proprietor’ mortgages could be an alternative for some.
If you’ve found my content helpful, and you wish to buy me a coffee, I have put a link in the description below. But even more importantly, if you need help, please contact me!
If you’ve ever wondered what are the different types of mortgage rates, I’ve made a video about it here.
Remember your home may be repossessed if you do not keep up with the repayments on your mortgage.
See you next week.