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What is the Mortgage Guarantee Scheme?
The Mortgage Guarantee scheme is a new government initiative that launched in April 2021 to attempt to encourage mortgage lenders to reintroduce higher Loan to Value mortgage products. This follows an industry-wide reduction in lending confidence, as a result of job instability caused by the coronavirus pandemic.
Reportedly the dramatic decline in lenders offering 95% mortgages has most severely impacted First Time Buyers, due to their lower ability, as a group, to save a large deposit. Whilst it’s expected to help more First Time Buyers, the scheme is open to all creditworthy mortgage applicants who wish to buy a home with a lower deposit, and will be available, initially, until December 2022.
How does it work?
Lenders obtain a guarantee when they offer 91% Loan to Value mortgages or above
The government guarantee can be purchased by any Mortgage Lender who chooses to offer mortgage deals of 91-95% Loan to Value, with mortgage rates fixed for at least five years. The guarantee prevents lenders from incurring significant losses if your home is repossessed, but it does not afford the borrower any protection.
As house prices continue to rise, this scheme will see a significant increase of 91%-95% mortgage products offered to those looking to get onto the property ladder, but struggling to save a large deposit. As little as a 5% deposit will be sufficient for many applicants and the fixed term interest rate of five years offers additional appeal to those on a fixed income.
Encourages responsible lending
To encourage responsible lending, there’s a clause in the scheme which holds lenders liable for 5% of any losses incurred as a result of mortgages arranged within the guarantee’s terms. This should protect borrowers from securing mortgages that they are not able to afford.
What qualifying criteria are there for the Mortgage Guarantee Scheme?
There are strict criteria for mortgage lenders to adhere to in order to be eligible for protection via the guarantee:
- Only Residential Mortgages for a first and/or only homes can be offered
- Individuals are eligible but incorporated companies are not
- Properties should be valued at £600,000 or less and in the UK
- The mortgage offered should be between 91- 95% Loan to Value
- The mortgage must originate between April 2021 and Dec 2022
- Only Repayment mortgages can be offered, not Interest-only
- All applicants are subject to affordability checks and a credit score test
Do I need a good credit history to access a 95% Mortgage via the Mortgage Guarantee Scheme?
The Mortgage Guarantee Scheme is based on responsible lending, and part of lenders’ responsibility under the scheme is to ensure that all applicants undergo affordability and credit score checks. Lender’s criteria will vary slightly, but all are likely to require a higher credit score in order to offer 90% mortgages and above.
How do I improve my credit rating?
You can very easily check your credit score through a credit reference agency online. If your score needs improvement, ensure that all of the information held on your file is correct and that you appear on the electoral roll for your current address. It’s also important to reduce any debts and not to apply for any further credit.
What other fees will I need to pay?
Stamp Duty is usually payable on the purchase of all UK properties over the value of £300,000. The Stamp Duty tax suspension on properties up to the value of £500,000, however, has now been extended until the end of June 2021.
Some mortgage calculators can give you a guide to the fees you incur when you buy a new home. You should be prepared to pay solicitors fees, mortgage arrangement fees, and the cost of searches and surveys for your new property, and be aware that fees are not standardised, so vary from one firm to the next.
How can IMS help?
Here at IMS, our friendly Mortgage Brokers can help you to find those lenders who are offering higher Loan to Value lending through the new Mortgage Guarantee Scheme. We have access to a wide spectrum of mortgage lenders within both the high street and independent mortgage market.
We can ensure that the lender you choose has the most suitable deals for your individual circumstances. We can provide support and guidance throughout the application process, taking much of the administrative burden out of your hands, for a smooth home buying experience.
IMS (Watford) Ltd is an appointed representative of mortgage company PRIMIS Mortgage Network, a trading style of Personal Touch Financial Services Ltd which is authorised and regulated by the Financial Conduct Authority. Contact us today for expert help to achieve your property goals.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE