In March 2021 the Government announced the Budget for the 2021-22 financial year.  Potential home-buyers previously priced out of the market have seemingly been offered a lifeline with the promise of Government-backed 95% mortgages.  But how will the Mortgage Guarantee Scheme work?  Read our guide to find out more.

The scheme is due to launch in April 2021 and will enable buyers to purchase a home up to £600,000 with a 5% deposit.  The aim of the scheme is to encourage cautious lenders to re-introduce low loan-to-value (LTV) mortgages after they were largely withdrawn from the market during the pandemic.

Lenders have been reluctant to offer low LTV mortgages, resulting in buyers requiring a 15-20% deposit to secure a mortgage.  As a result, a large number of potential buyers have found themselves priced out of the market.

In addition to the requirement for a larger deposit, the LBTT (stamp duty) holiday has pushed house prices up steadily across the UK, due to increased demand.

So how will the scheme work?

The scheme gives lenders the ability to purchase a government guarantee that will compensate them for up to 80% of their losses in the event the buyer defaults on the mortgage during the first 7 years.

The government have announced that HSBC, Lloyds, Santander, Barclays, Natwest and Virgin Money have signed up to the scheme, which means buyers will have a choice of providers across the high street.

Am I eligible?

The mortgage guarantee scheme is available to both first time buyers and existing homeowners looking to upsize.  To apply, your application must meet the following criteria: –

• the mortgage must be for a residential property (not a rental or a second home)
• the mortgage must have an LTV of between 91% and 95% i.e. your deposit must be between 5% and 9%
• the mortgage must be for a property situated in the UK, with a value of £600,000 or less
• the mortgage must be a repayment mortgage i.e. not an interest-only mortgage
• you must meet the lender’s usual criteria in terms of affordability, credit checks etc.

The scheme will provide much-needed assistance onto the property ladder for those who find themselves part of ‘generation rent’. It will also allow those who have been saving for a deposit to bring their plans forward.  With the scheme open to existing homeowners seeking to move up the ladder, we hope that this will result in more choice for first time buyers.

The scheme is open for a limited period (April 2021 – December 2022).  For more information about the scheme or any of our current properties for sale, please contact our Estate Agent Claire Craig.