The government’s new mortgage guarantee scheme launched this April is available to existing homeowners as well as first-time buyers and is not restricted to new homes. It allows buyers in England to obtain a mortgage on homes worth up to £600,000 with only 5% of the property’s value to put down as a deposit.
Around 86% of properties up for sale currently have an asking price of £600,000 or less, according to property website Rightmove. The government will offer lenders the option to buy the guarantee they need to provide mortgages that cover the other 95%. The guarantee will compensate them for a portion of their losses if the homeowner defaults on their loan. The usual affordability checks will still be carried out before a loan is approved.
Most low deposit mortgages were pulled in 2020 because of the coronavirus crisis as they are often seen as riskier by lenders as they are vulnerable to falling house prices. There were just eight on the market in January 2021 according to the Treasury. All lenders under the scheme will also offer mortgages fixed for at least five years as part of their range of products, giving buyers some sense of security by knowing their mortgage rate won’t go up over the short term.
The new mortgage guarantee scheme sits along aide the other schemes already available for first time buyers:
- Help to Buy Isa which is now closed to new applicants but those who already hold one have until November 2029 to use it. It is a tax-free savings account where for every £200 saved the government will add an extra £50. There is a maximum limit of £3,000 which is paid to your solicitor when you move.
- Help to Buy equity loan where the government lends up to 20% of the home’s value – or 40% in London – after the buyer puts down a 5% deposit. The loan can only be used to buy a new build property. The scheme will be replaced with another one with the same name on April 1, 2021 which has already opened for applications. Under the old scheme, the property value had to be worth less than £600,000 to be able to qualify for a loan but loans under the new scheme will be capped at 1.5 times the average first-time buyer property price by region in England.
- Lifetime Isa gives anyone aged 18 to 39 the chance to save tax-free and get a bonus of up to £32,000 towards their first home. You can save up to £4,000 a year and the government will add 25% on top.
- Shared ownership. Co-owning with a housing association means you can buy a part of the property and pay rent on the remaining amount. You can currently buy anything from 25% to 75% of the property but you’re restricted to specific ones.
- First Homes affordable housing plan, which is set to include 1500 new property units. These will be no different from other properties except they will be sold to first-time buyers with a discount of 30%.