What is the mortgage guarantee scheme?

The UK Mortgage Guarantee Scheme is a government initiative designed to help prospective homebuyers with smaller deposits get on or move up the property ladder. Initially launched in April 2021, the scheme has been extended and is now available until June 2025. It aims to increase the availability of 95% loan-to-value (LTV) mortgages, making home ownership more accessible.

Typically, lenders are cautious about offering mortgages to those with small deposits because of the higher risk involved. A 95% mortgage means the borrower only needs a 5% deposit, while the lender covers the remaining 95%. The government’s role is to offer a guarantee to the lenders, covering a portion of their potential losses if the borrower defaults and the property is repossessed. This safety net encourages lenders to offer more high LTV (Loan To Value) mortgages, which might otherwise be unavailable during market uncertainty.

To be eligible for the scheme, you don’t necessarily have to be a first-time buyer. However, the property you’re purchasing must be a residential home, not a buy-to-let or a second home. The scheme is applicable for properties worth up to £600,000 and is only available for capital repayment mortgages, meaning each monthly payment reduces the loan balance as well as covering interest. Participating lenders, such as Barclays, NatWest, and Lloyds, are offering these 95% mortgages, but the interest rates may be higher compared to mortgages with larger deposits​.

Accessing the scheme is straightforward as you simply apply for a mortgage with a participating lender. The application process remains the same as for any other mortgage, with the lender assessing your creditworthiness and financial situation. If you’re eligible, the lender will process your mortgage under the scheme’s guidelines and the government guarantee is applied behind the scenes.

While the scheme makes it easier for buyers with smaller deposits, it’s essential to consider the higher monthly payments that come with 95% mortgages due to the higher interest rates. Additionally, buyers should be aware of the risk of negative equity, which can occur if property values fall, leaving you owing more on your mortgage than your home is worth​.

In summary, the Mortgage Guarantee Scheme is a valuable tool for those struggling to save a large deposit. It offers a route to home ownership with just a 5% deposit, supported by the government’s backing to the lenders. If you’re considering this option, it’s wise to consult with a mortgage advisor to understand the best deals available and ensure it fits your financial situation.

Got a question? Click here and reach out!