Mortgage Guarantee Scheme - Helping buyers with 5% deposit

Published: 23/03/2021 By Musgrove & Co

Mortgage Guarantee Scheme

The government is starting a mortgage guarantee scheme to help first-time buyers and existing homeowners. This is good news for anyone who thought it difficult to save for a 15% or 20% deposit in the previous year.

This news was announced in the Spring Budget by Chancellor Rishi Sunak during his speech at the House of Commons. He explained how the scheme would work and what it meant to buyers.

Mortgage Guarantee Scheme - How will it work?

First-time buyers and existing homeowners will be able to buy homes up to £ 600,000 with a deposit of just 5%. The scheme will begin in April.
This makes the majority of buyers eligible for the scheme. Our research has shown that 86% of the properties currently registered for sale on our site are priced at £ 600,000 or less.

One thing to note here is that with an average asking price of £ 621,886, many properties in Greater London will be above the £ 600,000 proposed limit of the scheme.

In this scheme, the government pledges to pay some of the losses of the buyers if they default on their mortgage repayments for some reason.
In exchange for this guarantee, lenders have to sell the mortgage up to 95% of the price of the house. This is so that the mortgagor can continue with a deposit of 5%. This is a potential game-changer for many first-time buyers because a lot of 95% mortgages were not available during the previous year.

Mortgage Guarantee Scheme - What are some key figures?

For all properties, the average national asking price is currently £ 318,580, 3.0% higher than in February 2020. The national average asking price for a new buyer property is £ 200,692, a 3.6% increase over February 2020.

It was £ 246,748 in October 2013 and has increased 29% to £ 318,580 in February 2021. The national asking price for first-time buyer properties was £ 147,464 in October 2013. It has increased 36% to £ 200,692 in February 2021.

Mortgage Guarantee Scheme - Is it for everyone?

Yes, the government has also confirmed that the mortgage guarantee scheme will be open to all buyers if the house they buy costs less than £ 600,000.

So, rest assured as the scheme will help first-time buyers as well as those who want to go up the property ladder.

Mortgage Guarantee Scheme - How to apply?

England’s largest banks have devoted themselves to this scheme such as Santander, Lloyds, Barclays, and HSBC. In the new plan, the general mortgage strength check would still apply.

This means that existing house owners and first-time buyers will have to prove to their mortgagee that they can comfortably make monthly payments after covering other necessary expenses.

You have to have a cash deposit of at least 5% and then a mortgage of up to 75% to make a balance. There will be no loan fees charges on the 20% loan for the first 5 years of owning your house. The maximum purchase price covered by the scheme will be £ 600,000.

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