5% Deposit – The Mortgage Guarantee Scheme
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In March 2021 the Chancellor of the Exchequer announced a new scheme to help people get on the property ladder. The Mortgage Guarantee Scheme is bringing back 95% mortgages – so you can buy a home with just 5% deposit.
What is the Mortgage Guarantee Scheme?
The Mortgage Guarantee Scheme is a new government initiative to encourage people to buy a home. Since the Covid-19 pandemic the number of lenders offering a 95% loan-to-value (LTV) mortgage has fallen dramatically. That makes it more difficult to buy a home, as you will need to save up a bigger deposit to get a mortgage deal.
The new scheme promises financial support to mortgage lenders, so that they will reintroduce the 95% mortgage deals. It means that the government will absorb some of the lender’s loss if a customer were to default on their loan.
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What does the Mortgage Guarantee Scheme mean for customers?
A big advantage for homebuyers is that lenders involved have to offer five-year fixed rate mortgages. With a fixed rate deal, your payments stay constant from month to month, instead of changing in line with the Bank of England base interest rate. That makes it easier to plan for and keep up with the repayments.
The first brands to say that they would be reintroducing 95% LTV mortgages were Lloyds, NatWest, Santander, Barclays, HSBC and Virgin Money. The new deals will be open for applications between April 2021 and 31 December 2022.
What are the rules of the scheme?
The Mortgage Guarantee Scheme only applies to residential mortgages and you must be planning to live in the house – it’s not a second home or a Buy to Let. The loan must also be a repayment deal rather than interest only. The maximum purchase price is £600,000 at a 91% to 95% loan to value, so you will need a deposit of between 5% and 9%.
How much could I borrow on a Guaranteed Mortgage?
The amount you can borrow will depend on your income and the size of your deposit. By putting your details into a mortgage calculator you can see roughly much you could borrow.
You will also get a good idea of the monthly mortgage repayment costs. Check that you can afford these comfortably, because if you fall behind, you risk losing your home.
Your mortgage offer can vary a lot by lender, so compare various different deals. Taking into account both the mortgage rates and arrangement fees will help you narrow down the options.
Will lenders check my credit score for a Guaranteed Mortgage?
Your credit record is an important factor in how a mortgage providers will decide whether to lend to you. It gives them an idea of how likely you are to reliably meet all your repayments.
With small deposit mortgage products, lenders are less willing to take risks. Your credit score won’t need to be immaculate, though, as each lender has its own criteria.
Applying for mortgages will appear on your credit history, though, so make sure you meet the criteria before you submit an application.
What fees will I need to pay?
When you buy your first home you can be surprised by all the additional costs. You need to pay for solicitors, searches and surveys, and you’ll usually need buildings and life insurance too.
There is tax, too, in the form of stamp duty – although if you’re first time buyers you are exempt from this to £300,000. Another response to the pandemic has been to increase the thresholds for stamp duty.
It is currently due only on property valued at £500,000 and over. This limit reduces to £250,000 at the end of June and goes back to £125,000 at the end of September 2021.
How can a Mortgage Broker help?
Mint is here to support you at every step towards buying your own home. We will spend time getting to know you and your situation, exploring the kind of house prices you’re aiming for and what your future plans might be. All this information will help us find the most suitable 95% mortgages.
We’ll compare the lenders, their products, rates and fees on your behalf – and we’ll also make sure you understand the benefits and risks of high loan-to-value mortgages.
Our expert team of advisors are here to make it simpler to get a mortgage and buy a home. Contact our registered office today for an informal discussion about how we can help.