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What is the Mortgage Guarantee scheme?


Are you looking to get on the property ladder or expand your current property portfolio? The UK Government has set up a new mortgage guarantee scheme, geared towards helping homebuyers with deposits of 5% to make their way up the property ladder.


The new government-backed scheme began on 19 April 2021 following the March budget and encourages lenders such as banks to provide a 95% loan to value mortgage for all properties valued up to £600,000.


To help you understand the ins and outs of this new mortgage scheme, we're going to outline what it is, how to apply for it and other important aspects of this innovative framework to help individuals move their way up the property ladder.


An overview of the new mortgage guarantee scheme


The mortgage guarantee scheme was announced in the UK following the 2021 March budget by the Chancellor of the Exchequer, Rishi Sunak. It is intended to help potential homebuyers obtain a mortgage using a 5% deposit. Here are a few important details regarding the scheme:


  • It's designed to run for 18 months and will end in December 2022.

  • Following the global pandemic, mortgages were heavily cut back, with next to no 5% mortgages being made available by lenders. With a government-backed guarantee, lenders are now more able to provide these types of mortgages.

  • The scheme will apply to all properties valued under £600,000, with no requirements for new or old build properties.

  • Existing homeowners, as well as first-time buyers, are eligible for this scheme.

  • You can fix the initial rate for a 5 year period, should you wish.

  • Additional requirements for the scheme include a steady flow of income, evidence that you can afford the mortgage payments and a good credit rating.


Applying for the mortgage guarantee


The process to apply for the UK Government’s mortgage guarantee scheme is relatively straightforward. All you have to do is apply through one of the participating lenders. If you're unsure of the best course of action, you can always discuss your options with a mortgage broker. The following lenders have stated that they will be participating in the scheme:

  • Lloyds

  • NatWest

  • Santander

  • Barclays

  • HSBC

  • Virgin Money


The rates will still be variable depending on the size of the initial deposit that you put down, so keep that in mind before applying.


Is the mortgage guarantee scheme right for me?


Whether or not the mortgage guarantee scheme suits your current situation will depend largely on your readiness to jump into the housing market. If you're looking for a 95% mortgage, then the mortgage guarantee scheme is an excellent choice.


With that said, the terms of the mortgage are no better than they would have been pre-pandemic, so in essence, this scheme is filling the gap where these mortgages should have already been. If you can afford a higher deposit, then you will be saving considerable amounts of money on your mortgage payments.


When will the mortgage guarantee scheme end?


As previously mentioned, the new scheme was announced after the 2021 budget and was intended to run for 18 months. This timeline was rolled out to help recover the economy following the various lockdowns as a result of the pandemic. So, if all goes as intended, the scheme will end in December 2022.


It should be mentioned that the UK Government might change things, so it's a good idea to stay up-to-date on the mortgage guarantee scheme just in case. The current state of the housing market means that demand is incredibly high and supply is low, which could have a negative impact on the scheme and homebuyers.


Saving tips to help obtain a mortgage through the scheme


In order to be eligible for the mortgage guarantee scheme, you will need to have saved 5% of the mortgage to be used as a deposit. This still has the potential to be quite a lot of money and it's always a good idea to save as much as possible for the deposit since it can help lower your monthly mortgage payments. If you are trying to save up for your mortgage deposit, here are some tips to help you get there:


  • Figure out your budget so that you have a good idea of how much you can afford to save for your new property.

  • Assess the health of your current credit rating and work towards improving it so that you are eligible for a mortgage.

  • For prospective homeowners under 40, a lifetime ISA might be something to consider. This can help boost your savings by up to £32,000, which can be put towards your new home (up to the value of £450,000).


The demand for houses is high at the moment, so getting on the ladder can be tough. Thankfully, the mortgage guarantee scheme can help prospective homebuyers obtain their dream property. If you're in possession of land that you are considering selling, get in touch with our team at NFC Homes today for a free no-obligation quote.

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