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Remortgages with the Mortgage Guarantee Scheme 2021

No impact on credit score

Pete Mugleston

Author: Pete Mugleston - Mortgage Advisor, MD

Updated: May 26, 2021

In our guide to remortgaging through the mortgage guarantee scheme 2021, you’ll learn if it’s possible to remortgage through the new initiative, whether there are possible alternatives available to you, and how to get professional advice from the right remortgage expert.

Can you remortgage using the mortgage guarantee scheme?

Yes. You can remortgage using the mortgage guarantee scheme as this government initiative is open to everyone, including remortgage customers.

Switching to a mortgage that’s available exclusively through the mortgage guarantee scheme could be a potential option if you only have a limited amount of equity – specifically, between 5% and 9% – in your current property to secure your new mortgage agreement against.

One thing to keep in mind, though, is that the mortgage guarantee scheme is not the only way to remortgage with limited equity/deposit. There are mortgage lenders who offer 95% loan-to-value (LTV) mortgage products outside of the initiative, so it’s a good idea to compare these deals with what’s available through the guarantee scheme, but you don’t have to do the legwork on this yourself – a mortgage broker can do it for you!

They will search the market for every remortgage deal that you qualify for, compare guarantee scheme products with all of the other alternatives and help you make an informed decision about the best option.

Are there any restrictions on guarantee scheme remortgages?

Yes. A few of the participating lenders are applying caveats to remortgages under the guarantee scheme. Natwest, for example, has placed a restriction on additional borrowing for seven years after the agreement has been taken out. And Virgin Money – who are joining the scheme post-launch – will not allow capital-raising remortgages through the scheme.

These are merely two examples of the restrictions you might encounter if you’re using the guarantee scheme to remortgage. But with a mortgage broker on your side, restrictions you come across shouldn’t be deal-breakers. They could help you overcome any hurdles with your current lender or find you an alternative one, if that’s in your best interest.

Eligibility criteria

To remortgage through the guarantee scheme you will need to meet the following criteria…

  • Equity/deposit of between 5% and 9%
  • Property must be valued at less than £600,000
  • You can only remortgage a primary residence, not a second home or buy to let
  • You can only remortgage onto a repayment agreement, not an interest only
  • Remortgage applicant must be an individual(s), not a company
  • You cannot remortgage a new build through the scheme

In addition to the scheme’s requirements, you will also need to meet the lender’s general eligibility criteria to qualify for a remortgage. Even if you’re applying to refinance with the same lender, they will still carry out checks to assess your affordability and creditworthiness as things may have changed since you took out your original mortgage.

They will base these assessments on factors including…

  • Your income: Your mortgage lender will want to know whether it’s changed since your original mortgage, to make sure you can afford your new repayments
  • Your employment: Any changes here will also be taken on board. For example, if you’ve gone self-employed since taking out your original mortgage, this could affect which deals you qualify for
  • Your credit report: Any new credit issues since your original mortgage was agreed might drive up the interest rate on your remortgage and limit the number of approachable lenders
  • The exact amount of equity/deposit you have: The more, the better
  • Your outgoings: If they’ve increased since you took out your original mortgage, this could affect the amount you’re able to borrow

You can read about how eligibility is assessed in our guide to mortgage applications.

Age restrictions

Another factor the lender might take into account if you’re applying for a remortgage through the guarantee scheme is your age. Some participating banks such as Santander (69 years) and Natwest (67) place an upper limit on the age you can be at the point of application. Others like HSBC (79) have a maximum age you can be at the end of the mortgage term.

But the good news is that there are guarantee scheme lenders who offer remortgages with no strict age limits, under the right circumstances. As long as they’re confident that the mortgage will be paid during your retirement, you won’t be declined on these grounds.

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Which lenders are offering remortgages through the guarantee scheme?

All of the mortgage guarantee scheme lenders are offering remortgage deals through the initiative. If you already have a mortgage with one of the providers listed below and want to refinance with them, your application will be treated as a product transfer.

A full list of participating lenders can be found on our main page for the mortgage guarantee scheme.

If you’re looking for a product transfer with any of the above lenders and hold between 5% and 9% equity in your home, there’s a possibility that they might recommend switching to a mortgage guarantee scheme product. Before taking them up on this, it’s recommended that you speak to a remortgage broker to see what other deals are out there.

If your existing mortgage is not with one of the above lenders, but your equity/deposit amount is 5-9%, you could apply to remortgage through the scheme with one of these banks. But, again, it’s recommended that you have a broker compare the entire market before settling on a remortgage deal with a specific mortgage lender.

Many mortgage providers are now offering their own 95% LTV mortgages outside of the government-backed initiative, and one of these products might be a better fit for you.

How to remortgage using the mortgage guarantee scheme

Your first step should be to establish your loan-to-value ratio, which can be done by adding the amount of equity you hold to any additional borrowing you need and working out what your house is worth. Next, divide the loan value by the house value and multiply by 100.

If your LTV is between 91% and 95%, there’s nothing stopping you from approaching one of the lenders listed in the section above and applying for one of their guarantee scheme products. But there’s a good reason why you should hang fire on that.

Approaching a remortgage lender directly is not recommended as you will only have access to their products and would be running the risk of missing out on a potentially superior deal elsewhere. Similarly, limiting yourself to a guarantee scheme lender without carrying out a whole-of-market comparison first can be just as detrimental.

This is why your next step should be to speak to a mortgage broker who specialises in remortgages. They will be able to search the entire market on your behalf and compare what’s on offer elsewhere with the mortgage guarantee scheme. Once they’ve found the most suitable deal for you, they’ll negotiate with the lender on your behalf, guide you through the remortgage process and help you with any paperwork along the way.

If you make an enquiry with us, we can match you with a broker who specialises in remortgages, knows the guarantee scheme and its alternatives inside out, and has a solid track record of helping people with modest equity find great remortgage deals.

Remortgage rates available through the scheme

Since mortgage guarantee scheme products come with high loan-to-value ratios, this also means that the interest rates on them can be high. At the time of writing (May 2021), the rates across each lender’s range are hovering around the 4% mark, which is around one percentage point higher than equivalent products with 90% LTV.

Not everyone is in a position to delay their plans until they have at least 10% deposit/equity, but the good news is that it could be possible to land a remortgage deal with a lower interest rate, if you’re willing to cast your net out wider than the confines of the guarantee scheme.

New 95% LTV remortgage deals are being introduced to the market every day, some of them with lower interest rates than what’s available on the high street. So, be sure to have a broker carry out a whole-of-market search on your behalf before choosing a lender.

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Bad credit remortgages

If you have bad credit, you might still be able to remortgage through the mortgage guarantee scheme, but the lenders who’ll approve your application and products available to you might depend on the age, severity and reason for your credit problems.

With the guarantee scheme lenders being high street banks, it can be more difficult to remortgage with credit issues than it would be with a specialist lender. Specialist bad credit lenders are often more flexible when it comes to approving remortgage applications from customers with adverse credit and are known to offer more favourable rates to them.

That said, some of the guarantee scheme lenders are willing to overlook certain types of bad credit. For example, HSBC will ignore satisfied defaults and debt management plans as well as county court judgements (CCJs) that are over 36 months old. Natwest, meanwhile, is known to be flexible towards customers with CCJs and debt management plans.

Even though you might find remortgage options within the guarantee scheme, customers with bad credit are still advised to seek professional advice before approaching a lender. The chances of having to settle for hiked-up interest rates or being rejected altogether are high under these circumstances, but the right broker can make sure you’re introduced to a lender who caters for bad credit customers with modest deposits, with no legwork on your part.

See our article on applying for the mortgage guarantee scheme with bad credit for more information.

What if I’ve become self-employed?

If you’ve gone self-employed since you took out your original mortgage, you could still qualify for a remortgage under the guarantee scheme. The main difference between this application and your original one will be how your income is assessed and how you evidence it.

The main stumbling block you might encounter is if you’ve only been trading in a self-employed capacity for a limited time. Some of the scheme’s lenders, such as Natwest and Barclays, will ask for 2-3 years’ accounts as proof of income.

There are, however, other lenders who will consider you for a remortgage based on just one years’ accounts, but your product choice and chances of landing the best interest rate will increase if you use a mortgage broker and don’t limit yourself to the guarantee scheme.

Maybe the best deal for you is a guarantee scheme product, in which case your broker will guide you through the application process with the lender offering it. But there’s also a possibility it could be a remortgage deal offered by a broker-exclusive lender or a mortgage provider you’ve never heard of. Either way, by using a mortgage broker you can rest assured that you’ll find the right remortgage deal for your needs and circumstances.

Get matched with your ideal remortgage advisor today

If you’re remortgaging with limited equity and think the mortgage guarantee scheme might be the answer, the first thing you should do is speak to an expert to verify that. A mortgage broker can compare the products on offer through it with the other 95% LTV mortgage deals available to you, so you can rest assured that you’re making the right decision.

It’s important that you speak to the right broker before you apply, as they can offer you bespoke advice on your situation, match you with the ideal lender and guide you through the application process. Luckily for you, finding the right broker for people is our specialty.

We offer a free broker-matching service that will assess your needs and circumstances and pair you up with the advisor who’s best place to help you get the best remortgage deal available. Call 0808 189 2301 or make an enquiry to get started!

FCA disclaimer

*Based on our research, the content contained in this article is accurate as of the most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information. The information on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms who are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs.

Some types of buy to let mortgages are not regulated by the FCA. Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.

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