Mortgage guarantee scheme

The UK government is always committed to supporting people who want to become homeowners. The government is helping over 681,000 households to purchase a home since 2010. For this purpose, the government has initiated many government-backed schemes including Help to Buy and Right to Buy.

However, many hard-working households are still unable to go onto the housing ladder.

What is the mortgage guarantee scheme?

In the budget 2021, Chancellor confirmed that the government was launching a “mortgage guarantee scheme”. The scheme will aim to make it easier for those with a 5% deposit to buy a home.

The government will launch the scheme in April 2021 and will end on 31 December 2022. However, they have not announced the exact start date yet. The interested buyers will have 20 months to apply for a mortgage.

The scheme is quite similar to the Help to Buy scheme. Help To Buy ran from 2013 to 2016 and  105,000 buyers used it.

Who will be eligible to apply for the scheme?

The mortgage guarantee scheme is available to both first-time buyers and home movers across the UK. All the new-build and existing properties up to £600,000 are eligible. Second homes and buy-to-let properties are not allowed though.

Applicants will have to meet the same affordability and eligibility criteria as in standard mortgage.

Why did the Government launch the mortgage guarantee scheme?

Due to the adverse effect of the Covid-19 pandemic on the economy, the number of low-deposit mortgages has fallen. Although some 90% of LTV deals have returned. However, the number of 95% mortgages available to first-time buyers fell from 391 to just 3 in a few months.

The scheme is designed to encourage banks to start offering 95% mortgages again, after nearly every single one was withdrawn during the pandemic.

In simple words, the government will partially compensate the lender if a homeowner defaults on their mortgage.

Which lenders will offer the mortgages under the scheme?

The chancellor revealed the list of some major lenders who are ready to offer 95% deals from April. The list includes Barclays, HSBC, Lloyds Bank, Santander, NatWest and Virgin Money.

Furthermore, the participating lenders will need to offer a five-year fixed-rate mortgage as part of their range.

The government says this will give borrowers the security of predictable repayments for a longer period.

Would you like to take advantage of this incredible opportunity? Or do you need further advice on the mortgage guarantee scheme? Please call our office on 0113 2488181 and we will offer a free consultation.

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