New details of the government-backed 95 Per Cent Mortgage Guarantee Scheme are emerging. Here’s what we know so far…
Getting a new property as a first-time buyer or as an existing homeowner with a smaller deposit can be a challenge for many. According to the Bank of England’s Financial Stability Report (published in December 2020), approximately 75 per cent of renters may be constrained by a lack of sufficient funds for a deposit.
The government’s new 95 per cent Mortgage Guarantee scheme is devised to help first-time buyers and home movers in the UK join the property ladder or move house. You don’t have to be a first-time buyer to take advantage of the scheme, but you can be.
The scheme will increase the availability of 95 per cent mortgages by offering lenders the chance to purchase a government guarantee that compensates them for losses if they have to foreclose on a property.
A number of major high street lenders are participating in the scheme, including Barclays, Lloyds, NatWest, HSBC, Santander and Virgin Money. Lenders who choose to participate will need to offer a five-year fixed-rate mortgage to give borrowers the security of fixed payments for a long time.
What’s the criteria for the scheme?
According to the government’s website, the 95 Per Cent Mortgage Guarantee Scheme will be launched on 19th April 2021. The criteria for applying is as follows:
• You must be taking out a mortgage of between 91 and 95 per cent
• You must be buying a UK property with a value of £600,000 or less
• You must take out a repayment mortgage and not an interest-only loan
• The loan must be a residential mortgage and not a buy-to-let
• The mortgage loan must be taken out by an individual or individuals rather than a company
• You must pass the usual affordability checks, including a credit score assessment and show that you can afford the monthly repayments. Lenders are unlikely to lend more than 4.5 of your income or joint income if you’re buying with someone else, so your income will need to meet the criteria. Speaking to a reputable mortgage broker for advice will help you find out if the mortgage amount you have in mind is likely to be affordable.
How long will the scheme run for?
The scheme is designed to be a temporary one and will run from April 2021 to December 2022. The government believes that the current lack of high loan-to-value lending is scarce due to the pandemic. It will review the scheme towards the planned end date.
Incidentally, it’s also worth mentioning that some lenders who have chosen not to participate in the government-backed scheme have launched their own 95 per cent loan-to-value mortgages. At this early stage, they appear to be only targeting first-time buyers, but we will let you know if this changes. With the government-backed scheme, you don’t have to be a first-time buyer.
We’re here to help with advice on getting a mortgage. Please get in touch with us.