Mortgage Guarantee Scheme, What do you need to know?

The first deals under the Mortgage Guarantee scheme are launching on Monday 18th April 2021. The scheme allows borrowers to buy a property with as little as a 5% deposit. Here is what you need to know about the Mortgage guarantee scheme.

What is it?

It is a scheme designed to increase the number of mortgages available to those with a small deposit. Lending in this sector was restricted at the outbreak of the Covid pandemic due to uncertainty in the property market.

Are all lenders taking part?

No. The scheme will initially launch with a handful of lenders.

What loan to value deals will the scheme cover?

The loan will need to be more than 90% and less than or equal to 95%.

Will my income determine how much I will be able to borrow?

Yes, lenders will still conduct an affordability assessment based on your income and expenditure. Have a 5% deposit is not sufficient on its own to qualify for the mortgage.

Is it just available for residential purchases?

Yes, it is not available for second homes or buy to lets.

Does the house need to worth a certain amount?

Under the scheme, the property can be worth no more than £600,000. However, this does not mean the lenders partaking in the scheme will offer lending up to 95% of this amount.

How long will the Mortgage Guarantee Scheme be available?

Designed as a temporary measure, the government has announced the scheme will be available until 31st December 2022.

Will the deals under the Mortgage Guarantee scheme be lower than other deals not partaking in the scheme.

Even though there is an element of a government guarantee, lenders will have to pay a commercial fee for each mortgage. Therefore, it will be interesting to see the pricing difference between mortgage guarantee deals and those available in the market that are not using the scheme.

Could the scheme stop if it proves popular?

The government has set a contingent liability of £3 billion for the scheme. Like anything, should there be excessive demand, the government may revise its stance.

Can the scheme be used to buy residential property via a Limited company?

No, the scheme is for individual residential purchasers only.

Can the scheme be used to buy a property using an interest-only mortgage?

No. Mortgages under the scheme have to be capital repayment.

This article is for information purposes only and does not constitute advice. R3 Mortgages does not accept liability for any errors or omissions. Readers are encouraged to seek professional advice based on their own specific circumstances.