We’ve spoken previously about the Help to Buy (HtB) Mortgage Guarantee Scheme in this article and the purpose of this article is to reiterate how the scheme could be beneficial to you and any industry changes (accurate as of January 2022).
The Mortgage Guarantee Scheme is currently running until December 2022, although this date is subject to change. To give background, the scheme was introduced to increase the supply of 95% LTV mortgages (see this article for an explanation of what LTV - Loan to Value - is) in the aftermath of the initial stages of the Covid-19 pandemic, although it’s first appearance goes back several years. The Government recognised that many renters were unable to make the move to property ownership as gathering a 10% deposit can be a long and arduous process. They also recognised that there is an increased risk for lenders with mortgages that have a smaller deposit, lenders are naturally risk averse and want to ensure that the money that they have loaned out will be repaid. This is where the Mortgage Guarantee Scheme comes into play.
The Mortgage Guarantee Scheme helps people with a smaller deposit secure a mortgage by giving the lender a guarantee on a proportion of the mortgage. This guarantee usually lasts for 7 years, as it is at this point that a mortgage is less likely to default through lack of repayments. This guarantee is essentially an incentive for lenders to offer a wider range of 95% LTV products, which in turn creates a more competitive market for borrowers with a 5% deposit. It should be noted that the Mortgage Guarantee Scheme is available to both first time buyers & existing homeowners (subject to eligibility criteria) with the conditions that the property value must not exceed £600,000 and the mortgage must be a repayment mortgage.
In December 2021, it was reported that there were 300 more 95% LTV mortgage products available to borrowers, which suggests that the scheme is having an impact, with the number of 95% LTV mortgages steadily increasing. There are a number of lenders participating in the scheme, and within the terms of the scheme it is required that they offer a five year fixed rate as one of their products. This is ideal for borrowers who value the security of a five year product.
Whilst we would always encourage a larger deposit, so that you can make use of a lower rate of interest, we are also realists and will work to ensuring that you have the most competitive mortgage deal available to you whether its a 5% deposit or a 40% deposit.
To learn more about the current Government Backed Schemes available, the following articles are worth taking some time over.