In his Spring budget, Chancellor Rishi Sunak announced the Mortgage Guarantee Scheme as a way to help those looking to purchase a property but who don’t have large deposit amounts, to purchase a home.

What is the 95% Mortgage Guarantee Scheme?

Officially launched on the 19th April 2021, the Mortgage Guarantee Scheme is a government-backed scheme to ensure that there are low-deposit mortgage options on the market, allowing buyers to purchase a property up to the value of £600,000 with a 95% LTV (loan to value) mortgage, meaning that they only require a 5% deposit.

How does the Mortgage Guarantee Scheme work?

The government are providing lenders with the guarantee they need, in order to provide buyers with high LTV mortgage options (subject to the standard affordability checks on mortgage applications).

This is being offered as a response to the vast reduction in mortgage options which allowed buyers to purchase property with a small deposit. This reduction has been caused by lenders tightening eligibility criteria for money borrowing, due to economic consequences caused by the Covid-19 pandemic.

The demand for home ownership soared during lockdown, with government figures showing that 80% of private renters when asked, said they were actively saving up for a deposit to purchase their own home. The number of mortgage approvals also saw a 40% rise from the previous year in January, and this is a way to help level the playing field for those who, for whatever reason, are unable to purchase a property with a large deposit.

Who is offering 95% LTV mortgages?

Mortgages backed by the scheme are widely offered on the high street, with high street lenders such as Lloyds, Santander, Barclays, HSBC, and Natwest all offering 95% LTV mortgages already, and Virgin Money to follow suit in May 2021.

Mark Hayward, Chief Policy Advisor at Propertymark said:

“Over the past few months, there has been an increase in the number of prospective buyers and the number of house sales taking place. Coupled with the decision to extend the Stamp Duty holiday further, the Mortgage Guarantee Scheme will provide additional options for more people to become homeowners.

Access to finance and affordability plays a key role in the ability for people to purchase their dream home, so we are now very pleased to see further support for both first-time buyers and current homeowners looking to buy property or move up the housing ladder.”

How long is the Mortgage Guarantee Scheme going to last?

Although it’s being seen by the government as a temporary measure to run between April 2021 and December 2022, it will be reviewed on an ongoing basis to see if it’s still needed after December 2022. The reason it’s seen as temporary, is that the reduction in high LTV mortgages is seen as a temporary response to the pandemic, as opposed to a long-term structural change within the industry.

If you’re thinking of buying your first home, 95% mortgages are just one of the buying options open to you, there are other things such as Help to Buy, Shared Ownership and First Homes. Get in touch with us, if you’re new to this and would like a friendly person to help you start your search.