The Mortgage Guarantee scheme extended to December 2023

The Mortgage Guarantee Scheme to help homebuyers has been extended to the end of this year.

Under the scheme, first-time buyers and home movers have access to mortgages with a 5% deposit. Originally launched in April 2021, it was due to close on 31 December 2022.

But the government has announced it has extended the offer for creditworthy households who are struggling to get onto the housing ladder. It means eligible buyers are able to access a 95% mortgage to buy a property up to £600,000.

How does the Mortgage Guarantee Scheme work?

The government ‘guarantees’ the portion of the mortgage over 80% for buyers with 5% deposits. That means lenders are partially compensated if a homeowner fails to pay (defaults on) their mortgage.

It was introduced because many first-time buyers and home movers were struggling to afford deposits. Lenders were reluctant to offer 95% mortgages until the government stepped in.

Who is eligible?

The Mortgage Guarantee Scheme is available to first-time buyers and home movers in the UK. You must be purchasing a property to live in; you cannot use it for second home or buy-to-let properties. It is available to people buying both new-build and existing properties up to the value of £600,000.

The mortgage you’re applying for has to be between 91% and 95% of the value of the property. This is known as the Loan to Value (LTV) and this is how the ratio works… If you pay a 10% deposit on a home worth £200,000 you need a mortgage of £180,000 to pay for the rest. This means your LTV is 90%

You need to apply for a repayment mortgage and must pass standard affordability checks, such as credit score assessments. If you’re unsure about what a repayment mortgage is, check out our earlier blog.

Alternatives to the scheme

As you will be paying a higher proportion of the property price, you are likely to pay a higher rate of interest on your mortgage. It may be worth saving for a little longer to apply for a standard 90% mortgage overall. There are other schemes that can help people with a small deposit.

• Help to Buy equity loans lend you up to 20% of the value of a new-build home. The loan is interest-free for the first five years. It means you could buy a home with a 5% deposit, a 75% mortgage and top up the remaining amount with the Help to Buy equity loan. Find out more here.
• Shared ownership schemes allow you to buy a stake of as little as 25% of a property while paying rent on the remainder. The monthly costs of shared ownership schemes can be high, so take that into account.
• Guarantor mortgages allow a parent or family member to help you buy a home. They usually involve a family member using their home or savings as collateral should you default on your mortgage.

What to do next

If you are looking for a property and are considering the Mortgage Guarantee Scheme or an alternative, then we can help. Just book a free consultation by filling in our contact form.