What is the Mortgage Guarantee Scheme?
In April 2021, the government launched their new Mortgage Guarantee scheme, in response to the significant decline in high Loan to Value mortgage availability throughout 2020. The scheme encourages Mortgage Lenders to re-introduce high Loan to Value lending, following a loss in lending confidence across the mortgage industry, during the early part of the coronavirus pandemic.
The lack of Mortgage Lenders offering 95% mortgages impacted First Time Buyers most significantly, as a group who, overall, struggle to save substantial deposits. Whilst the main goal is to help First Time Buyers to more easily buy their first home, the scheme, which is available initially until December 2022, is actually available to all creditworthy mortgage applicants.
How does it work?
Allows lenders to obtain a government-backed guarantee for applicants for 91%-95% Loan to Value mortgages
Lenders are able to purchase this guarantee in return for offering borrowers mortgages at 91-95% Loan to Value and with the associated mortgage rates being fixed for a period of at least five years. The guarantee protects Mortgage Lenders against significant financial losses if your home is repossessed. It’s important to note, however, that it offers no protection to you as the borrower.
The good news is, if you’ve failed to secure a mortgage deal due to low deposit availability, 91%-95% mortgages with a fixed-rate period of five years will soon be far more accessible. This means that with a deposit as low as 5%, you have an opportunity to purchase a new home. With house prices rising at the beginning of 2021, this will be beneficial for many prospective homeowners.
Does not incentivise irresponsible lending
As guarantees of this kind have been known to incentivise irresponsible borrowing in the past, a clause has been included in the Mortgage Guarantee Scheme policy, which holds lenders liable for 5% of any losses incurred from a home purchase through the mortgage guarantee scheme.
What qualifying criteria are there for the Mortgage Guarantee Scheme?
In order to offer you a mortgage under the guarantee scheme, mortgage lenders must ensure:
- Only residential mortgages for a first and/or only home are offered (not Buy-to-Let)
- Only individuals apply (no incorporated companies)
- That the property in question is based in the UK and valued at £600,000 or less
- That they offer a Loan to Value rate of 91-95%
- Applications take place between April 2021 and Dec 2022
- Only Repayment Mortgages, not Interest-only, are offered
- All applicants are subjected to affordability checks and a credit score test
Do I need a good credit history to access a 95% mortgage via the Mortgage Guarantee Scheme?
Lenders have to offer mortgages through the Mortgage Guarantee Scheme responsibly, which means that they will need to assess your affordability and credit score before they can offer you a mortgage. On top of that, each lender has its own standard acceptance criteria for residential mortgages, so it’s worth speaking to one of our brokers to determine which Mortgage Lender is most likely to cater to your needs.
How do I improve my credit rating?
Prior to making a mortgage application, it’s important that you check your credit score, which can be done easily online, often for free. If your report highlights a need to improve your score, first of all, check that all information held on your file is correct. It’s simple to correct any mistakes, remove old addresses and ensure that you’re listed on the electoral roll at your current address. You should also repay outstanding debts and not apply for any further credit before your mortgage application.
What other fees will I need to pay?
Whilst Stamp Duty is usually due on all UK property sales above £300,000, the Stamp Duty tax suspension on properties up to the value of £500,000, has now been increased until the end of June 2021. Until then, Stamp Duty is only due on properties above £500,000.
A mortgage calculator can be helpful to determine what your repayments will be and how much deposit you will need, but there are also some that note the other fees involved in buying a home. You should be prepared to pay for mortgage arrangement fees as well as solicitors fees and the cost of searches and surveys on your new property.
How can The Mortgage Brokerage help?
At The Mortgage Brokerage, we have access to a wide range of Mortgage Lenders, so we can help you to find those offering high 91-95% Loan to Value mortgages under the new Mortgage Guarantee Scheme. We can advise you about how to make the most of the Fixed-rate interest deals and approach only those lenders who are likely to approve your application.