Mortgage Guarantee Scheme
How does the 95% Mortgage Guarantee Scheme work?
The Government have announced the introduction of the 95% LTV Help to Build Mortgage Scheme. In April 2021 it was announced that the scheme is to be backed by initial funding of £150 million that will be allocated over 4 years with the anticipation that this will assist between 30,000 to 40,000 self build homes in the UK every year.
Do you qualify?
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The scheme will be under a similar guise to the government’s current help to buy shared equity scheme that is aimed at the new build sector. There are key differences as the help to buy scheme is now purely for first time buyers and the equity loan is paid to the developer. With the Help to Build scheme the applicant would arrange a mortgage with a personal 5% deposit in the same way however the 20% equity loan would be paid on practical completion. On completion of the build the government loan is then paid to the lender and in turn reduced the loan to value to 75% of the build cost.
The government’s action plan gives a timetable of the Help to Build Prospectus being issued in Spring and the applications for the scheme to be open in late summer.
Why has the government introduced the scheme?
Earlier in 2020 the government looked to provide some impetus to the housing market by putting in place a stamp duty tax holiday, giving savings up to £15,000 to some would be home buyers. Whilst this had its desired effect many lenders started to restrict the availability of their mortgage ranges and one sector to suffer the most was that of the higher loan to value mortgage.
Nearly all lenders withdrew these from the market in entirety and although we have seen a good number of 90% LTV options return, 95% loans still remain scarce.
The 95% LTV Mortgage Guarantee Scheme therefore has been introduced with effect from April 2021 to encourage lenders to re-enter this arena.
Mortgage Guarantee Scheme explained?
The perceived risk by lenders when offering 95% mortgages has, as mentioned above, seen many simply withdraw from this market. The scheme therefore will provide a guarantee to the lender by the government for any loan offered at 95% loan to value.
It is important however to understand that this guarantee is provided for the lender and not you as the intended borrower. It will also not mean than a lender will take any different or a more lenient view of your finances when underwriting your application. Affordability will still remain an important aspect of their assessment as will your credit history.
In line with the additional risk that lenders will place on 95% loan to value mortgages, expect this to be reflected in the interest rates they offer. These will likely be higher than their schemes for 90% mortgages.
Sadly not all lenders will engage with the new government scheme and therefore do expect there to be a reduced number of options available.
Am I eligible for a 95% mortgage?
As with any government housing scheme, there will be certain criteria that needs to be fulfilled. Fortunately the 95% LTV Mortgage Guarantee Scheme looks to have been introduced with these kept to a minimum.
It is available to first time buyers plus home movers and also being made available for the purchase of new build properties and those on resale. Perhaps the only restriction of note is the maximum purchase price of £600,000.
How can I apply for the Mortgage Guarantee Scheme?
We understand that with numerous schemes available to provide assistance to many looking to purchase their home, it can be confusing as to which you may be eligible for and indeed which may suit you best.
The 95% LTV Mortgage Guarantee Scheme officially starts with effect from April 2021 and here at The Mortgage Centres, all our advisors are fully trained and in a position to assist you. Why not make us your next step towards purchasing your new home and contact us today for your free initial consultation.
Phil Scott
Director
About the author
Phil has worked in the financial services industry since 1992, having started with a large insurance company. He went self employed in 1996 as an Independent Financial Adviser before setting up his first company, Needham Market Home Financial in 1999.
After four years, he decided to concentrate solely on mortgages and related insurances, and The Mortgage Centres was born. Since then, Phil has been influential in the opening of several new offices as the business continues to grow.
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