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What is the Mortgage Guarantee Scheme?
In the government 2021 budget a new scheme was announced – the mortgage guarantee scheme. The scheme begins in April 2021 and ends in December 2022 and has been put in place because of the reduction in high loan-to-value lending due to the COVID-19 pandemic.
The pandemic has meant that many first time buyers with 5% deposits and good credit ratings are finding it difficult to find their way onto the housing ladder. The scheme aims to encourage lenders to begin to start offering these high loan-to-value mortgages again and also encourage First Time buyers to buy instead of renting.
If you have a 5% deposit you could benefit from accessing a 95% mortgage loan. The terms of the scheme allow for the security of a fixed deal for at least five years allowing you to know your monthly repayments and budget for them.
Lenders who take part in the scheme will benefit from protection in the form of a guarantee that if the property in question ends up being repossessed the government will compensate the lender a portion of the losses. The guarantee covers 80% of the purchase value of the property in question.
Borrowers who take part in the scheme will benefit from a number of different factors. More lenders are going to be flexible in terms of their lending meaning first time buyers will have more options. It also means you benefit from a fixed rate deal and a repayment type mortgage meaning the payments you are making each month are paying off the mortgage and not just the interest of the loan.
The scheme aims to help borrowers in a quick and efficient way and encourage them to take the step on to the property ladder. It should encourage more lenders and more competition in the property market.
Which lenders are going to be under the scheme?
The scheme is open to any lender that has permission under the Financial Conduct Authority to enter into authorised and regulated mortgages in the UK. So far a few high street lenders such as Barclays, NatWest, Lloyds Bank and Virgin Money have confirmed that they will be taking part in the scheme.
There are likely to be lenders that are not exclusive to the high street or building societies get involved in this scheme and offer mortgages that are competitive. It would be worth speaking with a mortgage adviser who can assist in giving up to date information on the ever-changing mortgage market.
Do I still need a good credit rating to be able to access the scheme?
The same affordability checks that are usually carried out and the assessments to ensure you fit the lender’s criteria will still take place under the scheme. This means that you do need to have a good credit rating in order to access the higher end loans and lower interest rates.
What are the qualifying criteria for the scheme?
The property that you are seeking a mortgage upon needs to be in the UK and have the value of £600,000 or less. It must be a residential mortgage and buy to let is not eligible for the guarantee. The mortgage must be taken out by an individual as opposed to through an incorporated company. The loan-to-value needs to be between 91-95%.
The Mortgage Guarantee Scheme will only be available to new mortgages and not existing ones. Products taken out during the duration of the scheme and under the scheme will be covered by the guarantee. The mortgage will be repaid as opposed to interest only – this means that your repayments will be paying off the property instead of just the interest on the loan. You will need to pass the standard affordability checks in order to access the scheme too.
How can a mortgage expert at the Mortgage Advice Centre help you?
Here at the Mortgage Advice Centre we keep up to date with the ever changing mortgage market and with the announcement of brand new schemes there isn’t a better time to talk about what your options are in terms of mortgages.
We can help explain the scheme to you further as well as your options when it comes to lenders after discussing your needs and current situation. There are many different mortgage deals and mortgage products out there and no doubt with the new Mortgage Guarantee scheme there are likely to be new ones arise. We can also offer tailored advice and guidance when it comes to your mortgage application – so get in touch today.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE