📢 *UPDATE 19/04/2021: The mortgage guarantee scheme launched on 19th April and we have updated this guide to include the latest information on it 🏠
With the end of the stamp duty holiday and ongoing coronavirus uncertainty threatening to hit the property market hard, the UK Government was under pressure to offer a lifeline to first-time buyers and people with low deposits in its Spring Budget, and these calls didn’t fall on deaf ears. Chancellor Rishi Sunak has unveiled a new mortgage guarantee scheme to bring high loan-to-value (LTV) mortgages back with a bang.
With the scheme now underway, we’ve put together this guide for anyone hoping to use it to get on the property ladder or move to a new home. In it, you’ll learn how the new initiative works, how to apply for it, and how a mortgage broker can help you breeze through the application process.
The new mortgage guarantee scheme is an initiative announced as part of the UK Government’s 2021 Spring Budget. It aims to help people get onto the property ladder with just 5% deposit. This is good news for anyone looking for a low deposit mortgage because banks and building societies pulled virtually all of their 95% LTV products during the coronavirus pandemic.
All mortgage lenders participating in the new scheme are obliged to offer a product with a five-year fixed rate as part of their range, which means the customer can lock themselves into a discounted rates period for this amount of time. After the five years have elapsed, the borrower will be switched to the lender’s standard variable rate (SVR) unless they remortgage.
A similar mortgage guarantee scheme was introduced as part of the Help to Buy programme. It ran for four years and helped more than 100,000 people get onto the property ladder.
The scheme encourages mortgage providers to take more risks with their lending, and the Treasury will help them do this by guaranteeing a portion of the loans on homes worth up to £600,000. This basically means that the government is taking on some of the risk that comes with higher-LTV lending and is offering incentives to lenders who reintroduce 95% LTV mortgages. They will charge a commercial fee for providing the guarantee, which will be valid for seven years after the mortgage’s start date.
As far as prospective borrowers are concerned, they simply need to save up at least 5% of the property’s value as deposit and apply for a mortgage as normal. Exactly which low-deposit mortgage products you qualify for will depend on your overall mortgage eligibility and creditworthiness.
A mortgage broker who specialises in low-deposit deals will be able to tell you which lenders you can approach for a mortgage guarantee scheme application, as well as identify the best one for you.
No, but they are the people who are expected to benefit most from it. The scheme is open to anyone with a 5% deposit, whether they’re a first-time buyer or a homemover. The main caveat is that there is a maximum property value of £600,000. Anything pricier than this will not be covered.
The scheme will run between 19th April 2021 and December 2022 initially. The government has pledged to review the initiative when it is due to end and assess whether an extension is needed.
To qualify for the 2021 mortgage guarantee scheme you will need to be a first-time buyer or a homemover who meets the following criteria…
If you tick all of those boxes, there’s nothing stopping you from applying for a 95% mortgage with one of the lenders who has reintroduced them, but the mortgage provider will have their own in-house requirements that you must meet as well. Given that 95% mortgages carry a high level of risk under most circumstances, some lenders will still have a stringent eligibility criteria.
Most will assess your eligibility and creditworthiness based on the following…
Some of the UK’s biggest mortgage lenders have confirmed that they will be offering 5% mortgages under the new guarantee scheme. The ones announced so far are Lloyds, Natwest, Santander, Barclays and HSBC, with Virgin Money set to pledge their support to the scheme in the near future.
Although 95% LTV mortgages have been difficult to come by since the beginning of the COVID-19 crisis, the new mortgage guarantee scheme isn’t the only way to get on the property ladder with a low deposit. Here are some possible alternatives to consider…
If you’ve got enough deposit saved up (5% or more) and found a property you want to buy, your next step is to find a mortgage lender that is offering 95% LTV products through the new government scheme. This might not be too difficult, but it’s vitally important that you find the right lender, as approaching one at random could mean paying more in interest or ending up with unsuitable terms.
With this in mind, your best bet is to find a mortgage broker who specialises in low-deposit deals. They will know exactly which lenders are offering the best rates for customers who are applying through the government’s guarantee scheme, and they will look at your needs and circumstances and narrow the list down to one mortgage provider, the one who’s best positioned to help you.
We offer a free broker-matching service that can pair you up with your ideal mortgage advisor, a fully-vetted expert with the knowledge and expertise to get you the finance you need through the new mortgage guarantee scheme, at the best interest rate available.
Call us on 0808 189 2301 or make an enquiry and we’ll set up a free, no-obligation chat between you and your perfect mortgage broker today.
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