As of 19 April 2021, a new mortgage scheme has been launched to try and increase the number of 95% mortgage deals available on the market. Several major lenders are taking part in the scheme, where want-to-be homeowners have access to 95% mortgages that are backed in part by the Government.
How does the Mortgage Guarantee Scheme work?
The scheme will run from 19 April 2021 to December 2022 and it is intended for all home buyers, not just first time buyers like previous schemes, who have a 5% deposit. This gives them access to 95% loan-to-value mortgages.
The mortgages operate just like normal mortgages for the buyers, but the lenders will have some of the risk guaranteed by the Government, to protect them if they lose money as a result of the mortgage (e.g. the buyer fails to keep up repayments and sufficient money isn’t recouped from the sale).
What type of purchases does the Mortgage Guarantee Scheme cover?
- The property must be used a main residential home in the UK and it cannot be a new build.
- The scheme covers purchases up to a maximum value of £600,000.
- The mortgage must be a repayment mortgage – not interest only.
- You need to have a deposit of between 5% and 9%.
Some things to consider…
- The interest rates are likely to be at least 1% higher than an equivalent 90% mortgage.
- Affordability criteria and other credit checks are still in place and will need to be met.
- Lenders will still need valuations to come on at the right level for the mortgage to be offered.
- It could tempt people to buy more than they could afford.
- 5% equity in a home is not a great place to be, you could get close to negative equity if the market dipped and you need to move or remortgage – many feel it’s better to rent and then buy with a 10% or greater deposit.