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What is the Mortgage Guarantee Scheme?
Following findings that the number of Mortgage Lenders offering 95% mortgages had fallen dramatically during 2020, the Government has announced The Mortgage Guarantee Scheme. The scheme is intended to encourage lenders to return to offering high Loan to Value lending and launches in April 2021. It’s expected to be available until at least December 2022, with some potential to be extended beyond that date.
First Time Buyers are reportedly the most significantly affected group, with many unable to buy a home due to low deposit availability. The main outcome is expected to be that more First Time Buyers will have access to higher Loan to Value mortgages, enabling them to buy their first home with a lower deposit requirement. The scheme is, however, available to all creditworthy mortgage applicants. With rising house prices, it’s therefore possible for others who are struggling to save higher deposits, to also benefit from the scheme.
How does it work?
A Government-backed guarantee protects mortgage lenders offering 91% or higher Loan to Value mortgagesThe scheme is straightforward for the borrower and won’t differ too much from a standard mortgage application. The way in which it works is that the lender offering you the mortgage will be able to purchase a government guarantee, in return for offering a 91-95%, Fixed-rate mortgage, with a fixed period of at least five years. The guarantee protects the lender in the event that your home is repossessed, to minimise their financial loss and therefore negate much of the risk. You should understand, however, that it offers no protection to yourself as the borrower. It does, however, give borrowers more access to higher Loan to Value mortgages.
Does not incentivise irresponsible lendingTo ensure that lenders do not use this guarantee to lend irresponsibly, there is a clause in place that holds lenders liable for 5% of any losses incurred.
What qualifying criteria are there for the Mortgage Guarantee Scheme?
- They must be a residential mortgage for a first/only home (not Buy-to-Let)
- Can only be offered to an individual or individuals (no incorporated companies)
- Mortgaged properties must be in the UK and valued at £600,000 or less
- Must offer a Loan to Value of between 91% and 95%
- Has to start to begin with the scheme’s duration (April ‘21 – Dec ‘22)
- Must be a repayment mortgage
- Applicants are to be subjected to affordability and credit score tests
Do I need a good credit history to access a 95% Mortgage via the Mortgage Guarantee Scheme?
Whilst the Government guarantee is intended to make it easier for applicants to obtain a mortgage, it is also based on responsible lending. You will still need to meet the acceptance criteria for the lender’s standard residential mortgage, which will include proving affordability and a strong credit score.
How do I improve my credit rating?
What other fees will I need to pay?
Stamp dutyOrdinarily, Stamp Duty is due on properties purchased at £300,000 or more. The current suspension of Stamp Duty tax on properties up to the value of £500,000, however, has now been extended until the end of June 2021.
Other feesThere is a range of mortgage calculators available that help you to gauge how much you will pay in fees when you take out a mortgage. You should expect to pay solicitors fees, mortgage arrangement fees, and fees for searches and surveys on your new property.
How can Home Financial help?
Here at Home Financial, our Mortgage Brokers have access to a wide variety of lenders, some of whom have already started to re-introduce higher Loan-to-Value lending. If you’re struggling to get a deposit together, we can guide you towards those lenders utilising The Mortgage Guarantee Scheme, in order to offer higher Loan to Value lending.
As well as taking care of much of the frustrating administrative side of the application, we can ensure that you make the most of the longer-term fixed-rate mortgage deals available.
Podcast Interviews With The Home Financial Team