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Mortgage Guarantee Scheme Extended: Buyer Support Will Continue for 12 Months

What the extension to the Mortgage Guarantee Scheme means for your property purchase plans and how this news impacts mortgage costs and availability.

22 December 2022

mortgage guarantee scheme

In welcome news for buyers struggling to get onto the housing market or move home in a period of unprecedented interest rates, the government has announced that the Mortgage Guarantee Scheme will now remain available for an additional year, having been due to close at the end of this month.

The Mortgage Guarantee Scheme was originally launched in April 2021, an initiative supported by the government and designed to make it easier for buyers to purchase their first home or secure affordable mortgage financing.

Lenders and banks can rely on a financial guarantee, enabling them to accept smaller minimum deposits of 5% of the property purchase value without needing to charge higher fees or interest rates to offset their risks. Since its inception, the scheme has been used by over 24,000 mortgage applicants.

The Mortgage Guarantee Scheme: How it Works

The Mortgage Guarantee Scheme has been extended by a year and is now expected to close in December 2023, supporting more people with deposits from 5% and upwards who wish to purchase a new home, whether a first property or following a move.

Mortgage lenders have the option of securing a guarantee, backed by the government, on mortgage agreements with a deposit of under 10%. Should the borrower default and the lender be forced into a repossession scenario, the lender can claim compensation to offset their losses.

While the scheme is not exclusively available to first-time buyers, this is the buyer demographic that has been most active in using the initiative. However, any buyer who is otherwise eligible for a mortgage product can access the benefits on purchases worth up to £600,000, depending on their selected lender.

Around 85% of the 24,000 mortgages agreed since the Mortgage Guarantee Scheme was first introduced have been for first-time buyers, with the remainder organised for those moving home.

Why Has the Government Extended the Mortgage Guarantee Scheme?

In the post-pandemic recovery period, thousands found it impossible to put a mortgage in place, with lenders withdrawing mortgage products such as 95% mortgages, commonly used by first-time buyers.

Without this breadth of products, first-time buyers were left with the prospect of either trying to save at least a 10% deposit – a financial challenge for most – or relying on a guarantor to ensure a lender could accept their application without deeming it too high a financial risk.

The risk-averse approach of lenders meant that in January 2021, only eight products with a 95% Loan to Value threshold remained on the market. The scheme aims to improve access and consumer choice, preventing the housing market from slumping and restoring competitive lending.

Following multiple consecutive increases to the Bank of England base rate, amid floundering attempts to tackle inflation, the pressure on first-time buyers and house movers has not eased. The extension to the Mortgage Guarantee Scheme means many more banks and lenders will continue to offer mortgage products to buyers with a 5% deposit, with the assurance that they are not exposed to significant losses should the buyer be unable to keep up with their repayments.

The other important aspect is that when housing prices are volatile, there is a greater risk that a mortgage worth 95% of the property purchase value will be impacted if the property falls in value – meaning the buyer owes more than they own and is in negative equity.

I have recapped the eligibility criteria below, but buyers should remain aware that applications remain subject to thorough valuations, affordability assessments and other evaluations to avoid this situation.

Stamp Duty Relief for First-Time Buyers

The government has also adjusted Stamp Duty thresholds, meaning first-time buyers are only subject to this tax on values over £425,000, increased from £300,000. First-time buyers can claim Stamp Duty relief on properties worth up to £625,000 against a prior £500,000 cap.

Higher Stamp Duty thresholds are due to remain in place until April 2025, when they will revert to the previous levels.

Eligibility for the Mortgage Guarantee Scheme

There are several eligibility criteria to qualify for the Mortgage Guarantee Scheme. Applicants must also comply with the lending policies imposed by their selected lender, which remain in place in addition to the scheme requirements.

  • The property being purchased must be worth up to £600,000.
  • It must be a primary home – second homes and rental investments are excluded.
  • Buyers must have a deposit worth at least 5% of the property purchase price.

Other criteria, such as credit history checks and affordability evaluations, remain relevant, and anybody who is otherwise eligible can apply, whether a home mover or first-time buyer, and whether purchasing a new-build or a pre-existing property.

For more information about accessing the Mortgage Guarantee Scheme or to compare products available from participating lenders, please contact Think Plutus at your convenience.

Written By

Dave Relfe MCSI DipPFS CertSMP

Dave is the principal mortgage and protection adviser at Think Plutus. He has more than 15 years of experience in financial services and holds the Diploma in Financial Planning from PFS, Investment Advice Diploma from CISI, and the Certificate in Advanced Mortgage Advice from the Society of Mortgage Professionals. He has devised the unique Think Plutus approach that has helped many clients, from first-time buyers to buy-to-let investors and property developers, to people looking to remortgage or release equity from their property. Connect with Dave on LinkedIn.

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