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5% Deposit Mortgage Guarantee Scheme

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5% Deposit – The Mortgage Guarantee Scheme

Are you a First Time Buyer wanting to buy your first home?  Or a low-equity homeowner ready to upsize because your family has outgrown your home?  Since the beginning of 2020 you may have felt thwarted by the hefty deposits mortgage lenders are expecting.

These larger deposits of £30,000 to £45,000 needed to get a mortgage to buy the type of property you want feel virtually impossible to save for, especially if you’re renting.Well that’s all about to change with the Government’s new 5% Deposit Mortgage Guarantee Scheme.

Read on to find out how you could benefit from the scheme.

What is the Mortgage Guarantee Scheme?

During the Covid-19 pandemic lenders offering 95% mortgage deals withdrew them from the market to limit their risk as many people’s job security hit an all time low.

This has stopped many First Time Buyers from buying their first home and prevented existing homeowners from stepping up to the next rung of the property ladder. This has reduced the availability of smaller starter homes.

To remedy the situation for First Time Buyers and existing Homeowners, and to stimulate the housing market, the Government announced the new 5% Deposit Mortgage Guarantee in the Spring 2021 budget.

The Guarantee will help mortgage lenders reduce their risk of offering low deposit mortgages to borrowers who may default, by covering a chunk of a lender’s costs. This means lenders now have the confidence to re-launch new 95% LTV mortgages.

As the new Scheme comes on stream in April 2021, mortgage lenders, including Barclays, Santander, Lloyds, Virgin-Money and HSBC, have signed up to the scheme, with many more starting to reintroduce 95% Loan To Value (LTV) mortgages.

How will The Mortgage Guarantee Scheme help me?

New First Time Buyers and existing Homeowners who need to upsize can apply for these mortgages between 1 April 2021 and 31 December 2022 from lenders that have joined the Scheme.

As a borrower with a good credit rating, you’ll be able to apply for a mortgage loan between 91% and 95% of the purchase price. In other words, buy a home with a deposit of between 5% and 9%.

Another benefit is long term financial certainty. As part of the Scheme, lenders have to offer five-year fixed rate repayment mortgages.  This means your monthly repayments will stay the same during the five-year term giving you ongoing financial certainty.The Government wants to make it easy for borrowers to apply for mortgages and simple for lenders to process your application quickly and administer the mortgage effectively.

It also means you will only be sold a mortgage if you can afford it.To discover how much you could borrow, use a mortgage calculator like the one on The Mortgage Store website.  To find out how to apply for one of these mortgages, speak to one of our Mortgage Brokers.

What are the rules for 5% deposit mortgages?

There are several rules that apply to the scheme, so it’s important to be aware of these beforehand.
The 5% deposit mortgages are available on residential mortgages for a property you will live in as your main home. They’re not available on second homes or Buy to Let properties.

To qualify you will need to take out the mortgage under your own name as an individual or jointly, but not through a limited company.  You will also need to have a solid credit background.

These mortgages are only available on UK properties valued at £600,000 or less and offer a loan-to-value between 91% and 95%. The lender must offer the mortgage on a repayment basis only, so interest only mortgages cannot be sold.

Depending on the mortgage you choose, you will need to put down between 5% and 9% as a deposit. On a £250,000 that would be between £12,500 and £22,500.

To ensure you can afford the mortgage you apply for, you’ll need to meet the standard loan-to-income and credit score tests.

Do I need a good credit rating to get a 5% mortgage?

Having a history of paying your bills on time shows the lender that you’ll be a responsible borrower. They’re more likely to approve your mortgage application.

However, if you think you may have a few blemishes on your credit record, you may be able to rectify these before applying. For example Check your credit score using one of the three main online credit agencies Experian, EquiFax or TransUnion. You’ll be able to tell whether you have any debt you need to clear.

Pay off any debts and contact old creditors if they haven’t removed the flags on late payments.  Next, make sure your correct name and address appears on the Electoral Roll.

What extra costs will I have to pay when I buy a home?

There are a range of fees that go along with buying a house at the start of the process.

Stamp Duty can be the highest of all the costs.  However, the Government has waived stamp duty on homes that cost up to £500,000 until 30 June 2021.

After that Stamp Duty will only be charged on properties sold for more than £250,000 until 30 September 2021. From 1 October 2021 the 0% charge returns to properties worth £125,000.

Other fees include conveyancing searches and surveys dealt with by a solicitor.  There will also be mortgage fees, however sometimes the lender includes these as part of your mortgage deal.

A lender will expect you to have life insurance in place, and you will need buildings insurance once the home you are buying becomes yours.

How can The Mortgage Store help?

As experienced and highly regarded Mortgage Brokers we are qualified to help you find the right mortgage for you and your family under the new Mortgage Guarantee Scheme.

One big advantage of what we do is save you time, money and hassle when it comes to applying for a mortgage.

After a friendly introductory chat to find out more about you and the type of property you would like to buy, we will get to work to:

  • help you calculate how much you can borrow based on your budget, income and affordability
  • explain the extra costs and fees associated with buying a property
  • explore the various lenders offering the new 5% deposit mortgages, and choose a lender that suits you best
  • We’ll help you gather all the paperwork and complete your application for you
  • Then we’ll submit it to lender and manage the whole mortgage application process for you – so you can get on with your day to day
  • All you need to do is give us a call, or complete the contact form on our website.

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