Mortgage Guarantee Scheme
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5% Deposit – The Mortgage Guarantee Scheme
What is the Mortgage Guarantee Scheme?
The Mortgage Guarantee Scheme launched in April 2021 and will run until December 2022 when the scheme will be reviewed. There has been a rise in “generation rent” and a decline in “generation buy” meaning that more people are choosing to rent due to the mortgage and property market taking a hit from the COVID-19 Pandemic.
Lenders have become less likely to offer a high loan to value mortgage and it is meaning that credible households do not want to be first time buyers due to the rise in house prices and the lack of mortgage deals.
To increase competition in the market, the Mortgage Guarantee Scheme offers a guarantee for lenders that will protect them in case the property in question ends up being repossessed due to the borrower not making mortgage repayments. The government will protect lenders and will cover 80% of the purchase value of the property in question.
The scheme allows for borrowers to approach lenders with a 5% deposit and in turn access a higher end loan to value mortgage. The mortgage will need to be between 91 – 95% loan to value.
What are the benefits of The Mortgage Guarantee Scheme as a borrower?
The scheme offers a sense of security as for a mortgage to be under guarantee the lender has to agree to a fixed rate deal until the guarantee ends. This offers a sense of security in knowing what your mortgage repayments are going to be.
There is likely going to be a lot more competition arising on the mortgage market meaning that not only high street lenders and building societies will offer mortgage products that are competitive but specialist lenders are likely to want to get involved too. A 95% mortgage loan with only a 5% deposit alongside this means it may become easier for those struggling to find a deposit for their first home.
Which lenders are under the scheme?
Any lender who has authorised and regulated mortgage products under the Financial Conduct Authority within the UK can access the scheme. There are a few banks that have already said they are jumping on board such as, Barclays, Lloyds Bank, Virgin Money and NatWest.
It would be worth seeking the help of a mortgage adviser who will be able to give an up to date overview of the mortgage market and can tell you what lenders are under the guarantee.
Do you need good credit to access the Mortgage Guarantee Scheme?
You will undergo the standard affordability checks that a lender carries out which involve delving into your financial history to ensure you are not a high-risk borrower and that you can afford the repayments on the mortgage you are applying for.
It is important to always have your finances at the best they can possibly be before approaching a lender. This is so that you can access the higher end loans and also potentially lower interest rates too.
If you do have bad credit there will be options out there for you however it is likely you will not be able to access the scheme.
What is the qualifying criteria for the Mortgage Guarantee Scheme?
You will need to make sure that you are taking out a residential mortgage on a property that has a value of £600,000 or less. Buy to Let mortgage products are not covered under the guarantee. You need to ensure that you take the mortgage out under yourself as an individual as opposed to through your company.
The scheme is there for new mortgages and not existing ones. The mortgage will need to be a repayment mortgage and not an interest only plan. This means that you will be paying off the property as well as the interest of the loan rather than just the interest of the loan. You will also need to pass the affordability checks carried out by your chosen lender so ensure to read their criteria before approaching them.
How can a mortgage expert at The Mortgage Company help you?
The mortgage market can be a stressful place and it is constantly changing. You might be wondering what your options are and if it is worth seeking a lender who is under the scheme. We can answer any questions you may have in regards to this new mortgage scheme and in regards to mortgages in general.
We can offer tailored and expert advice on mortgages and will listen to your situation in order to hand pick lenders that will suit you.
YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE