95% Mortgage Guarantee Scheme

This government-backed mortgage scheme was launched in April 2021 as a response to the sudden lack of low-deposit mortgages available when the coronavirus pandemic began. It aims to help first-time buyers get onto the property ladder and allow current homeowners to move onwards with just a 5% deposit.

Available across the UK, this scheme applies to properties priced up to £600,000. It will remain open for mortgage applications submitted by 31^st December 2022 although this will be reviewed nearer the time. Buyers need to pass the standard affordability checks carried out by lenders and must take out a fixed rate repayment mortgage.

The need for this 5% deposit scheme

At the beginning of the coronavirus pandemic, the majority of low-deposit mortgages were suddenly withdrawn from the market. This resulted in a minimum deposit requirement of 15% or 20% of a property’s value from most lenders. Such a high amount has made obtaining a mortgage extremely difficult for many people hoping to buy a property.

The government’s main focus with this scheme is to help younger first-time buyers get onto the property ladder. Many are either living at home or in rented accommodation with no way to proceed with a mortgage deal. They are faced with high property prices, a hefty deposit requirement and stricter lending criteria. Paying high rents in the current climate also makes it hard to save a deposit, which is made even more difficult with the low interest rates on savings accounts. These combined factors have led to a generation of renters who cannot get mortgages even though they can afford the monthly repayments. By removing the obstacle of saving a high deposit, the government hopes this scheme can help to turn ‘generation rent’ into ‘generation buy’.

As mentioned earlier, it’s not just first-time buyers who can benefit from this 5% deposit scheme. Many homeowners can’t afford to move home without a 95% mortgage. Being able to secure a deal under this scheme allows those who have previously been stuck where they are to move up the property ladder. This keeps the housing market moving and frees up more homes that can also cater to the increased demand from first-time buyers.

Why do lenders agree to this scheme?

To encourage lenders to offer 95% mortgages, the government has agreed to cover some of the costs should buyers default on their mortgages. The portion over 80% of a mortgage is guaranteed to 95%. This means if a homeowner fails to keep up with their mortgage repayments and the property is repossessed, the government shares some of the burden with the lender so that they are partially compensated for their losses.

At Trinity Finance, we have extensive dealings with the lenders participating in this scheme. One of the scheme’s terms is that the lenders have to offer a 5-year fixed rate mortgage in their range of deals. This gives you the security of knowing exactly what you have to pay each month during that period. Each lender will also offer alternative deals for fixed rate mortgages and our mortgage brokers in Kent, London and Edinburgh can help you decide which best fits your needs. Speak with one of our friendly mortgage advisers on 01322 907 000 for more information or send an enquiry to us at info@trinityfinance.co.uk and we will reply to you as quickly as possible.

What does the 95% mortgage guarantee scheme entail?

To be eligible for this scheme, you need to:

• Be a first-time buyer or current homeowner
• Use the property as your main residence
• Pay a 5% deposit
• Take out a repayment mortgage with a fixed rate
• Pass the lender’s affordability checks

This means you cannot buy a property to use as a second home, as a buy-to-let investment or as a commercial property. You also cannot have an interest-only mortgage deal. When applying for your mortgage, you still need to go through the lender’s normal affordability checks to ensure you can comfortably afford the monthly repayments.

Are there any issues to be aware of?

Whilst the government has set a property price cap of £600,000 for this scheme, some lenders have set their own lower price caps. The government has also advised that this scheme applies to new-build properties as well as existing ones. Some lenders, however, won’t agree to provide a loan under this scheme for a newly built property. Our mortgage brokers know which lenders have set lower price caps and which ones will only agree to 95% mortgages for existing properties. We can liaise with the right lenders on your behalf to ensure your mortgage needs are met.

You don’t have to pay a fee to be part of this scheme but some lenders will charge you a mortgage arrangement fee. We will advise you of any fees that are payable for different mortgage deals before you make a decision. As your mortgage has such a high loan-to-value (LTV) ratio, which refers to the percentage of the property’s value that you want to borrow, you can expect to pay much higher interest rates than if you had a deposit of 10%, for example. A bigger deposit opens up more mortgage options as well as providing you with lower rates, helping to keep your monthly repayments lower. Our mortgage brokers have access to all of the deals offered by lenders participating in this scheme, including deals that are not offered publicly. We can search for the best 95% LTV mortgage deal to meet your requirements, taking into account the rates and any applicable fees.

Another point to bear in mind is that having such a high LTV ratio puts you at risk of being in negative equity in the future. This means that if your property’s value drops, it may be lower than the amount you owe for your mortgage.

How to apply for the 95% mortgage guarantee scheme

To obtain a mortgage under this scheme, simply contact us on 01322 907 000 and our qualified mortgage brokers will search for the best deal for you. We will ascertain how much you can borrow and check whether this type of mortgage is the most suitable one for your circumstances. With unrestricted access to the market, we may be able to find better options that you may not have been aware of.

Get in touch for impartial advice and expert recommendations

Only having to provide a 5% deposit can be the break you need to either step on the first rung of the property ladder or move further up it. It can still be hard to save this amount, though. Our mortgage advisers, located throughout Kent, London and Edinburgh, can advise you on ways to boost your deposit, such as saving with a Lifetime ISA, or how to get help if you’re struggling to save one at all, such as using a gifted deposit or applying for a guarantor mortgage. If you have managed to save more than 5% for your deposit, it may be in your interest to postpone your plans to buy until you can increase the amount to 10%. A 90% LTV will provide you with more mortgage options and considerably cheaper rates than opting for a 95% LTV mortgage.

There are also other government-backed schemes that can help you obtain a mortgage with a low deposit. These include the First Homes scheme and the Help to Buy shared ownership and equity loan schemes. Our mortgage experts can give you impartial advice on these, discussing the pros and cons of each so that you can make an informed decision about which mortgage route to take.

Give us a call on 01322 907 000 to find out exactly what your options are. If you prefer, send us an email at info@trinityfinance.co.uk or an enquiry via our contact form and one of our mortgage consultants will reply to you as quickly as possible with more information.