What is the mortgage guarantee scheme? | moneyfacts.co.uk

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Published: 14/07/2021

At a glance

  • The mortgage guarantee scheme allows buyers to purchase a home with just a 5% deposit
  • Lenders can offer 95% loan-to-value (LTV) mortgages that are backed by a Government guarantee, with the scheme running until 31 December 2022
  • It’s hoped that this will lead to a boost in high-LTV mortgage options

What is the mortgage guarantee scheme?

The mortgage guarantee scheme is a Government initiative that “guarantees” mortgages at 95% LTV, offering the chance for those with just a 5% deposit to secure a suitable deal. It was launched in April 2021 in response to the COVID-19 pandemic, which saw mortgage providers become increasingly risk-averse and meant lending to those with small deposits plummeted, with almost all 95% LTV deals being pulled from the market. In an attempt to revive this sector – and help those locked out of homeownership – the Government has intervened, with the latest scheme a follow-up to the similar and hugely successful Help to Buy: Mortgage Guarantee Scheme which ran from 2013 to 2016, and helped 105,000 buyers onto the ladder. The current scheme is set to run until December 2022.

How does the mortgage guarantee scheme work?

Under the scheme, borrowers will be able to access mortgages with a 5% deposit, meaning they can apply for 95% LTV deals – but crucially, the Government will guarantee the portion of the mortgage over 80%, which lowers the risk for lenders as they’ll be partially compensated if the borrower defaults (lenders will need to purchase this guarantee from the Government). This is designed to offer reassurance to mortgage providers and encourage them to offer products at this level again, which should give low-deposit borrowers more options to buy a home.

However, you – the borrower – will see no difference between 95% LTV mortgages offered under the scheme and those offered elsewhere. You’ll still be required to put up a 5% deposit and will need to make the repayments in the usual way, with any difference being behind-the-scenes. The goal of the scheme is simply to boost the number of products available at 95% LTV, and there’s a push towards longer-term security for borrowers, too, with the Government stipulating that any lenders participating in the scheme have to offer five-year fixed rates as part of their 95% LTV range.

Who is eligible for the mortgage guarantee scheme?

Thinking of applying for a mortgage under the scheme? Here are the criteria:

  • You must be buying your main residential home, and it must be in the UK (you can’t use the scheme to purchase a second home or buy-to-let property).
  • You must be applying as an individual or jointly; businesses won’t be able to take out a mortgage through the scheme.
  • The property must be valued at £600,000 or less.
  • You’ll need to provide a deposit of between 5% and 9% (which means you can apply for a mortgage at between 95% and 91% LTV; calculate yours using our LTV calculator).
  • You must apply for a repayment mortgage; interest-only deals aren’t applicable under the scheme.
  • You’ll need to pass the usual affordability criteria required by lenders, which will include a credit check. If yours isn’t up to scratch, make sure to check your credit score and work on ways to improve your credit score it ahead of time.

Who’s taking part in the scheme?

Several big-name lenders are taking part in the scheme, including Lloyds, Halifax, NatWest, Santander, HSBC, Barclays and Virgin Money. A range of two and five-year fixed rate mortgages are currently available under the scheme, as well as a few tracker mortgage deals.

Is the mortgage guarantee scheme only for first-time buyers?

No. Anyone can apply for a mortgage under the scheme, provided they meet the criteria listed above, which means first-time buyers, home-movers and remortgagors are all eligible.

How do I apply for a mortgage under the scheme?

The process is exactly the same as it would be if you were applying for any other kind of mortgage – start the process by searching for a 95% LTV mortgage and ideally speak to a mortgage broker to make sure you’re getting the right deal from your needs (some deals are only available via intermediaries, so it makes sense to check). You’ll need to fill in an application form and will have to pass both the scheme eligibility criteria and the usual mortgage affordability checks before you’ll be approved.

Can I get a 95% LTV mortgage without using the scheme?

Yes, you can; there are plenty of alternative 95% LTV mortgage deals available. Remember that the scheme is designed to offer additional security for lenders, but borrowers won’t notice anything different, so don’t pick a mortgage solely because it’s part of the scheme – instead, you need to make sure that you compare mortgage rates as you usually would and choose the one that offers the best terms for your circumstances.

Remember too that 95% LTV mortgages will always be more expensive than their lower-LTV counterparts, regardless of whether or not the lender is taking part in the scheme. If you can, try to save a larger deposit beforehand, with mortgage rates becoming a lot more affordable if you can offer a deposit of 10% or more. Just make sure to factor stamp duty into your affordability calculations; use our stamp duty calculator so you know what you’ll be expected to pay.

What are the alternatives to the mortgage guarantee scheme?

If you’ve only got a 5% deposit but find that the deals available via the mortgage guarantee scheme aren’t suitable, the Help to Buy equity loan may be an option. This is another Government-backed scheme designed to help those who haven’t been able to save a larger deposit, but this time it offers assistance in the form of an equity loan worth up to 20% of the value of a new-build property (or 40% in London). This means you only need to secure a 75% LTV mortgage, which could be more affordable. 

Should I speak to a mortgage broker?

Mortgage brokers remove a lot of the paperwork and hassle of getting a mortgage, as well as helping you access exclusive products and rates that aren’t available to the public. Mortgage brokers are regulated by the Financial Conduct Authority (FCA) and are required to pass specific qualifications before they can give you advice.


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At a glance

  • The mortgage guarantee scheme allows buyers to purchase a home with just a 5% deposit
  • Lenders can offer 95% loan-to-value (LTV) mortgages that are backed by a Government guarantee, with the scheme running until 31 December 2022
  • It’s hoped that this will lead to a boost in high-LTV mortgage options


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