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Help to Buy - The Mortgage Guarantee Scheme

The Mortgage Guarantee Scheme was unveiled by Chancellor Rishi Sunak in March 2020 as a way to support First Time Buyers. The scheme offers a financial guarantee to banks and building societies to encourage them to offer higher loan-to-value mortgages. 

What is the Mortgage Guarantee Scheme?

This new scheme gives borrowers a government-backed guarantee to apply for a mortgage with a 5% deposit. 

It has been introduced in response to changes in the mortgage market. In recent months there has been a decrease in lenders offering 95% mortgages, making it harder for people to get on the property ladder. 

The average deposit is around 10% of a property value, and with house prices now at an average of £230,000, this means a buyer needs to save up £23,000. This is impossible for many people, giving rise to the ‘generation rent’ trend. 

What are the rules of the scheme?

An important part of the scheme is that any lender offering it must offer customers a five-year fixed rate mortgage deal. 

A fixed mortgage provides consistent payments each month, instead of fluctuating along with the national base interest rate. The mortgage must also be repayment, not interest-only.

The Mortgage Guarantee Scheme only applies to residential mortgages, not Buy to Let. Mortgages must be for individuals not companies, and the property must have a purchase value of £600,000 or less. 

The loan-to-value must be 91% to 95% – so customers will need a 5% to 9% deposit.  

How does it work?

In a nutshell, the government is offering reassurance to the lenders, by promising to take a share of the losses if a customer is unable to pay back the mortgage. This reduces the risk to lenders and makes them more willing to offer 95% mortgage products. 

Lloyds, NatWest, Santander, Barclays, HSBC and Virgin Money were among the first lenders to announce new mortgages under the scheme. Their 5% deposit mortgages will be open for applications between April 2021 and 31 December 2022.

Is a good credit rating important for a Help to Buy Guaranteed Mortgage?

Every lender will look at your credit record when you apply for a mortgage, because they need to know whether you have ever run into financial trouble with previous borrowing.

With a 95% loan, lenders are less willing to take risks, but some may still allow people with past credit issues to take out a mortgage. Every bank or building society will set their own criteria for acceptable credit scores. 

How much will I be able to borrow on a Guaranteed Mortgage?

As with any mortgage, the lender will look at your income, outgoings and your deposit to decide how much to offer you. Use a mortgage calculator for an idea of much you could borrow – although each lender might offer mortgages at a different total value. 

Check that your monthly mortgage repayments will be affordable, as if you fall behind with the payments, you risk losing your home. 

Mortgage offers can vary a lot by lender so you should compare both rates and fees across a number of providers, to narrow down the options. 

What other fees will I need to pay?

When you buy your first home you will need to pay for solicitors, searches and surveys, plus insurance products as part of your mortgage and property contracts. 

There is also tax to pay, called stamp duty – although first time buyers are exempt from this tax. Currently, as a response to the pandemic, stamp duty is only due on houses priced £500,000 and over. This threshold reduces to £250,000 at the end of June and reverts to £125,000 on September 30 2021.

How can a Mortgage Broker help?

We can help you explore whether the Mortgage Guarantee Scheme will help you get on the property ladder. At Bespoke Mortgage And Finance Centre Ltd we have knowledge of the mortgage market and can find the right lender for you.

We’ll spend time getting to know you and your property goals to find the right mortgage to match. We’ll compare lenders, products, rates and fees and explain the pros and cons of a high loan-to-value mortgage. 

We’re here at every step to advise and support you on your property journey. Contact us today for an informal discussion about how we can help.

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