Mortgage guarantee scheme: what is it, and who can apply?

What is the mortgage guarantee scheme?

The mortgage guarantee scheme is a UK government-run initiative intended to make it easier for first-time buyers to get on the property ladder with just a 5% deposit.

By offering to guarantee lending, the scheme reduces lenders’ risks and encourages them to offer loans at 95% LTV.

Launched in April 2021, the mortgage guarantee scheme was originally intended to end in December 2022, but has been extended twice and is now scheduled to end on 30 June 2025.

However, in the run-up to the 2024 General Election, Labour stated its intention to make the guarantee permanent.

Who can apply for the mortgage guarantee scheme?

Not everyone is eligible to apply for the mortgage guarantee scheme.

To qualify, you need to:

• Be a first-time buyer or home mover

• Be applying for a single or joint mortgage

• Be applying for a repayment mortgage

• Be buying a property worth up to a maximum of £600,000

• Have access to 5%-9.99% of the total deposit

You cannot apply for the mortgage guarantee scheme if you are buying a second home, new build, buy-to-let property or applying for an interest-only mortgage or commercial mortgage.

Unlike other first-time buyer schemes, you can use the mortgage guarantee scheme for any type of property. However, lenders may have their own restrictions.

The scheme is supported by a number of lenders, including Barclays, Lloyds, Santander and Halifax. 

However, lenders that don’t promote the mortgage guarantee scheme may still offer 95% mortgages. 

From a buyer's perspective, the key will be getting a loan at 95%. The mortgage guarantee is intended to encourage lenders to offer these deals, so it doesn’t make a difference to the buyer whether the lender is part of the scheme or not.

How to apply for the mortgage guarantee scheme

You don’t need to apply for the mortgage guarantee scheme itself. Rather, you need to find a lender that will offer you a mortgage at 95% and then make an application in the standard way. 

However, if your lender is using the scheme, your application will need to meet certain criteria.

1. Use a mortgage calculator 

It is helpful to use a mortgage calculator to determine the property you can afford if you’re planning to get a mortgage with a 91-95% loan to value (LTV),

2. Select a mortgage that is 91%-95% of the value of the property you’re applying for 

If the mortgage is for between 91%-95% of the value of the home you intend to buy, you should be eligible.

3. Pass standard affordability checks 

Before your application can be accepted, the lender will want to check your credit score and repayment history. If you pass, you can proceed to the next step.

4. Submit your application

Once you have all your documents and information ready, you can make your application directly to a lender. However, if you want advice or support with your mortgage application, it’s worth talking to a qualified mortgage broker.

The pros and cons of the mortgage guarantee scheme

There are pros and cons to the government mortgage guarantee scheme and buying a home with a small deposit.

The pros of the mortgage guarantee scheme

• Eligibility: There are more opportunities for first-time home buyers to get on the property ladder, and the scheme is also open to those looking to move and previous homeowners.

• House prices: You can buy a home worth up to £600,000 to live in, offering the chance to live in areas where house prices are usually higher.

• You only need a small deposit: A minimum of just 5% is needed as a deposit to buy your own home.

The cons of the mortgage guarantee scheme

• Higher mortgage rate: 95% mortgages are still considered higher risk to lenders, so you will pay a higher mortgage rate than borrowers with a bigger deposit.

• You may struggle to remortgage: If your home doesn’t appreciate in value, you may struggle to remortgage when your initial fixed-rate deal ends.

Are there any alternatives to the mortgage guarantee scheme?

If you’re struggling to get onto the property ladder, there are other options you may want to consider.

For example, you can look into shared ownership or consider a guarantor mortgage, where a trusted individual (for example, a parent) will agree to cover your mortgage repayments if you can’t pay them yourself.

Alternatively, if you’re happy buying a new build, you may find that developers offer schemes to support buyers, for example the Own New Rate Reducer Scheme.

Want to learn more about mortgages?

The UK government mortgage guarantee scheme has made it more affordable to initially buy a home and allows more people to get on the property ladder.

There are criteria that need to be met to obtain a mortgage of up to 95%, and buyers must ensure that they are aware of the pros and cons beforehand. 

If you want to learn more about mortgages, let Unbiased match you with a mortgage broker who can offer expert financial advice.