Could the mortgage guarantee scheme help you get a mortgage this year? If you’ve saved a deposit but it’s not quite 10% of what you need, you might be eligible to apply for the scheme.
Here’s how it works, where you can get further advice and how to apply.
What is the mortgage guarantee scheme?
It’s a government initiative that incentivises banks and mortgage lenders to provide 95% LTV loans for home purchases. If a lender agrees to provide a mortgage for up to 95% of the market value of a property, the government will share the risk, promising to guarantee a portion of the loan in the event that the borrower doesn’t repay it.
Risk is a big factor for mortgage lenders and providing a 95% mortgage carries a greater risk of loss for them. Lots of lenders don’t provide this type of loan but having a guarantee has encouraged a handful of lenders including:
Natwest
Lloyds
Sanatander
HSBC
Barclays
How does the scheme work?
To be eligible for the scheme, you’ll need a minimum of 5% of the market value of a property but lenders will allow as much as a 9% deposit, if you’re in a position to do so. Remember, having a larger deposit reduces the amount you need to borrow and therefore usually, your monthly mortgage repayments will be less.
The maximum value of the property you want to purchase can be £600,000 under the mortgage guarantee scheme but let’s say you want to buy a house worth £300,000. A 5% deposit would be £15,000 while the mortgage amount you’d need to borrow from the bank would be £285,000.
Deposit examples for the mortgage guarantee scheme
Market value of property | Deposit amount (5%) | Deposit amount (6%) | Deposit amount (7%) | Deposit amount (8%) | Deposit amount (9%) |
£100,000 | £5,000 | £6,000 | £7,000 | £8,000 | £9,000 |
£200,000 | £10,000 | £12,000 | £14,000 | £16,000 | £18,000 |
£300,000 | £15,000 | £18,000 | £21,000 | £24,000 | £27,000 |
£400,000 | £20,000 | £24,000 | £28,000 | £32,000 | £36,000 |
£500,000 | £25,000 | £30,000 | £35,000 | £40,000 | £45,000 |
£600,000 | £30,000 | £36,000 | £42,000 | £48,000 | £54,000 |
How do I check if I meet the criteria?
The Mortgage Guarantee Scheme is available to first-time buyers and home movers buying a property to live in (not buy-to-let). Both new build and existing properties priced up to £600,000 are eligible, though some lenders don’t include new build property purchases within their criteria.
Furthermore, the mortgage must be offered on a repayment basis, not interest only. You’ll also need to apply either as an individual or individuals, not a company.
You would also need to check your eligibility for the participating lenders as each one has different criteria and rules about affordability.
This would involve providing details about your:
Age
Income
Job
Debt
Credit history
Number of dependants (children or adults that financially rely on you)
Never just apply to a lender without carefully reading their criteria beforehand because if you get rejected, that could negatively impact your credit report and your chances of getting approved for a mortgage or loan in the future.
You can check your eligibility, without affecting your credit report, with a mortgage broker. It’s their job to find you the most affordable route based on your circumstances and if you’re not eligible just yet, they can advise you on how to improve your affordability so you can get approved in the future.
They’ll also talk to you about the alternatives to the mortgage guarantee scheme which might include affordable housing schemes like Shared Ownership or the First Homes Programme.
Deciding which lender is best for you
Once you know whether you meet the criteria for any of the participating mortgage guarantee scheme lenders, you can weigh up the pros and cons of each. Things to consider may include:
The length of the mortgage contract
The cost of the repayments
The flexibility to repay the mortgage early (either with a remortgage or overpayments)
The cost of any fees involved
Whether the lender will provide a mortgage through the scheme for a new build or not (some won’t)
What’s the process for the mortgage guarantee scheme?
Once you’ve made your decision, you can begin the formal application process. If you’ve opted to work with a broker, they handle this for you. They’ll already have your documents from when they previously checked your eligibility, so it might just be a case of double checking some details which can be done over the phone, face-to-face or via WhatsApp. It’s whatever is easiest for you with the brokers from The Mortgage Hut.
Your broker then sends off your application and continually checks that things are going smoothly. If your estate agent or surveyor are slowing things down, they can chase them up so you don’t have to.
If your chosen lender approves your mortgage application, they purchase the guarantee from the government. This compensates lenders for potential losses should a property be repossessed.
When that successfully goes through and the relevant signatures of all those involved have been gained, your solicitor receives the loan amount and pays this to the property seller, which might be a person or a new build developer, depending on your choice of property.
When does the mortgage guarantee scheme end?
If you’re eligible for the scheme, you have until December 2022 to get approved for a mortgage. However, the government has announced that they’ll review the initiative when it’s due to end and make a decision on whether to extend the scheme.
What are the alternative options if I’m not eligible?
The mortgage guarantee scheme isn’t the only way to get a low deposit deal when buying a home. Other lenders that don’t participate in the scheme have their own 5% deposit options and if you speak to a broker, they can tell you where to find them and what they might be able to offer you.
Guarantor mortgages with family
There are also ways to get a mortgage if you have a willing family member who is happy and in a position to be your guarantor. These mortgages usually require a homeowner to guarantee the mortgage debt, meaning that if you, as the borrower were to miss a repayment, they would be liable to pay.
The guarantor isn’t named on the property deeds, so the property would be owned solely by you.
Shared Ownership
If you’re eligible, you could buy a share of a property and rent the portion that you don’t yet own. There’s no obligation to buy more shares but if you want to, you can usually do so by buying a set percentage each year or by remortgaging in the future for a larger amount and using the extra funds to buy a bigger percentage. Most developers allow people to buy as little as 10% upfront, so a smaller mortgage and therefore a smaller deposit would be required.
For example, a property valued at £300,000 and bought with a 25% (£75,000) Shared Ownership mortgage could require as little as a 5% deposit, which would be £3,750.
First Homes programme
Under this scheme, eligible first-time buyers can purchase a new-build home in their local area at a discount of 30% on the market price. The 30% discount isn’t repayable but if and when it comes to selling the property, that discount is passed on to the next buyer.
In some areas where property prices are particularly high, local councils can award as much as a 50% discount under the First Homes Programme.
There are caps on property prices - Including a £250,000 price cap after the discount, though a higher cap of £420,000 will apply in London.
There’s also caps on household income - Buyers’ combined income is capped at £80,000 across England and at £90,000 in London.
Buying a home through a low deposit deal in 2022
The Mortgage Hut has brokers that find low deposit mortgages for first-time buyers and home movers every day. They have a digital catalogue of over 90 lenders and can quickly show you the ones you’re eligible for and explain why specific options are cheaper overall.
They’re real people, with a genuine ability to listen and understand what you need. If you’re not quite there with your deposit just yet, call 023 8098 0304, message or pop into the office for practical steps to get you there faster.