The mortgage guarantee scheme was announced by Chancellor Rishi Sunak in his Spring Budget this week. The scheme will bring back low deposit mortgages with the aim of giving people who cannot afford large deposits a chance to buy a home. In his Budget statement, Mr Sunak said that “even with the stamp duty cut, there is still a significant barrier to people getting on the housing ladder – the cost of a deposit.” Announcing his new scheme, he said it was “policy that gives people who can’t afford a big deposit the chance to buy their own home.”
What is a mortgage guarantee scheme?
The scheme will see the Government offer lenders a guarantee when offering mortgages to people with five percent deposits.
This means mortgages will once again be available where you can borrow 95 percent of the house price from the bank with a deposit of five percent.
The new scheme is not restricted to first-time buyers but can be used by anybody buying a main home rather than a second home or a buy-to-let.
The scheme will be available from April 2021 until December 31, 2022.
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Navana Property Group CEO Harry Fenner said: “In a bid to encourage sales and help first time buyers to get on the ladder, the Government-backed 95 percent mortgage guarantee scheme will act as a huge incentive.
“It will help many prospective buyers who have often viewed owning a home impossible, with more recent hopes to own perhaps curtailed by the impact of Covid-19 on their financial circumstances.
“Low deposit loans have been overlooked by lenders due to their higher risk potential, meaning first-time buyers have missed out as banks have focused on perceived higher quality loans.
“However, by the government guaranteeing these new mortgages, the risk from the loans is removed for the lender, creating a window of opportunity for prospective buyers.”
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Amid the coronavirus pandemic, 95 percent mortgages largely became unavailable as lenders deemed them too risky amid the precarious financial climate of the crisis.
However, from April 2021, several of the country’s largest lenders including Lloyds, Natwest, Santander, Barclays and HSBC will begin offering these 95 percent mortgages.
Mr Sunak also revealed more lenders such as Virgin Money will also offer these mortgages after April 2021.
The Chancellor said: “We want to turn Generation Rent into Generation Buy.”
Scout Financial Services Principal Neil Weston said the availability of high LTV mortgages has sharply dropped during the pandemic.
Mr Weston told Express.co.uk: “The Government has announced a new mortgage guarantee scheme to support first-time buyers in particular.
“This will increase the availability of 95 percent loan-to-value (LTV) mortgage products, enabling more people to access mortgages without the need for a large deposit, which is often the biggest hurdle for buyers.
“The availability of high LTV lending has seen a sharp reduction throughout the pandemic, with many lenders pulling such products.
“This has left many first time buyers with smaller deposits unable to get a mortgage.
“The way it will work is that the Government will provide lenders with the option to purchase a guarantee on the mortgage.
“Basically, the Government will compensate the mortgage lender for a portion of the net losses suffered in the event of repossession. It appears to be successful already, with many big lenders signing on.”
He added: “Whilst the availability of mortgages for 90 percent of the purchase price has improved recently, the market has remained restricted by tight lending criteria and the lack of high loan-to-value mortgages.
“More support for lenders to lend a higher percentage of the purchase price will no doubt be welcomed across the industry and by first-time buyers.
“However, many first time buyers may find themselves in a tricky position where they will now have enough money saved for a deposit, but they are unable to secure a mortgage as a result of being furloughed.”
Ben Gent of property investment platform Assetz Exchange said: “The announcement in Wednesday’s budget of the mortgage guarantee scheme is yet another indicator of how important the government believes homeownership and a strong property market is to both society and the economy.
“This coupled with the extension of the stamp duty holiday and the delay to fiscal tightening provides a flip to a house market which is already benefiting from a strong tailwind.
“Low-interest rates, a bounce back from the virus, pent up household savings and continuing excess of demand over supply are key foundations of continuing strength in the housing market.
“Adding to this the government’s support and the importance they place on homeownership, we firmly believe predictions of an imminent fall in house prices are misplaced and expect a continued moderate gain in prices in 2021.”
You can use this mortgage calculator tool to work out how much you would pay each month depending on your type of mortgage and lender.