Mortgage Guarantee Scheme 2021 Guide

Guaranteed mortgage loans are big news. Right now we’re looking at a return to 95% mortgages. The last Budget saw the Chancellor of the Exchequer Rishi Sunak announce a fresh new 2021 Mortgage Guarantee Scheme. It might be exactly the kind of the lifeline that first time buyers need, letting people who are new to the housing market buy their first home with just a 5% deposit. And it’s exciting news for those of us who have been struggling to save huge amounts of money for bigger deposits. Here’s everything you need to know about the 2021 Government mortgage guarantee.

What is the 2021 Mortgage Guarantee Scheme

The government’s new mortgage guarantee 2021 scheme is designed to help first time buyers of homes bought for a maximum of £600,000 to get a mortgage with a 5% deposit. The 95% Loan-to-Value mortgage, once a common sight, is back. It’s great to see when most banks stopped offering 5% deposit mortgages early last year thanks to the virus. The uncertainties of covid made lending more risky.

This January there were fewer than ten 5% mortgages on offer. The few 10% deposit mortgages still on the market have very strict eligibility rules as well limited availability. And the true cost of a house has shot up for many people. Now, because the government’s commitment to a 5% deposit mortgage guarantees part of the loan, lenders can relax. They know the payments will be made and they’re happier to provide 5% deposit loans. You can see how the scheme works well for lenders as well as borrowers. It’s a really good deal for anyone who wants a first time buyer mortgage.

When is the New Mortgage Scheme Available

The new Budget 2021 mortgage guarantee scheme is available from 19th April 2021 to December 2022, and it’s valid for seven years after the mortgage is secured. Lenders are offering mortgages with interest rates fixed for at least five years, which gives more security to buyers. The government’s 7 year guarantee of validity means lenders are only liable for any losses after that. As you can imagine, seven years is enough for a first time buyer to be comfortable paying their loan back, without too many problems, unless something drastic happens. The extra security both parties get from the deal should help everyone concerned.

Who is Eligible for the New Mortgage Scheme

This 5 percent deposit mortgage scheme is not only for first time buyers, although they’ll probably benefit the most. It’s there for other people who can’t afford the usual higher deposit mortgages. But there’s a limit on the value of the property you can buy under the scheme of £600,000 maximum.

How Does the New Mortgage Scheme Work

This scheme is available to everyone who wants to buy a home, not just first time buyers. There are a few important things to be aware of:

  • The property must be valued at less than £600,000
  • It doesn’t have to be a new build home
  • The loan has to be taken out by an individual, not a business
  • You can only take out a repayment mortgage
  • You can’t use the scheme for buy-to-let 
  • You might run into stricter rules around maximum income multiples
  • Mortgages will come with the usual checks – you’ll still have to meet eligibility conditions 
  • You have to apply for a mortgage from a list of approved lenders

Why the Government Launched the Mortgage Guarantee Scheme

Why has the government launched this new scheme? The Covid-19 pandemic stopped the UK property scene in its tracks, and the number of low-deposit mortgages has plummeted since March 2020. In just under a year the number of 95% mortgages for first time buyers dropped from 391 to three as lenders fled the market. This left first time buyers without large deposits stuck, keen to buy but unable to find a loan. 95% mortgages were effectively extinct until the government stepped in, so it’s a boost for everyone who wants to move. 

Take the opportunity – 5% deposit mortgages are here

This government first time buyer assistance comes with a time limit of December 2022. When you’re funding your own home it’s a bank account-saver. It’s also available if you’re not a first time buyer. You have to apply to a suite of pre-approved lenders. You’ll still need to pass income and other checks. But with a bit of luck you’ll be able to buy a home with a deposit of 5% and – finally – get your feet on the property ladder. Congratulations!