The spring budget was announced on Wednesday 3rd March and included some welcome news for those wanting to purchase a property with a small deposit.
The mortgage guarantee scheme is a 95% loan to value (LTV) mortgage scheme to help buyers with a 5% deposit. Under the scheme, buyers can purchase a property priced up to £600,000 and it is open to everyone, not just those who are buying their first home and never had a mortgage before – as was the limitation for the Help to Buy Scheme. This means that the scheme will help both first-time buyers as well as those looking to move up the property ladder.
Since June when the property market re-opened following the pandemic, house prices have increased. This combined with lenders withdrawing high LTV mortgages from the market, has meant that first time buyers have found it difficult to get onto the property ladder. Buyers faced having to raise deposits of around 20% in order to secure a loan and this was against a backdrop of house prices increasing. As a result, a substantial number of first time buyers have had to put their plans on hold.
This new scheme is available through many of the large lenders including Barclays, Lloyds, HSBC and Santander and these mortgages will be available from April.
In Scotland, the average property price (according to Rightmove) is £161,522. Under this scheme a buyer would need a deposit of £8,076.
The mortgage guarantee scheme means that the government will repay lenders some of their losses if the buyer defaults on their mortgage payments. In return for the guarantee, lenders will sell mortgages worth up to 95% of the property price.
The mortgage application for this scheme will be the same as applying for a standard mortgage – you will have to undertake affordability checks and show that you can afford the monthly repayments. With the existing Help to Buy scheme, the government would lend you 20% of the cost of your newly built home from an approved developer and would share in any increase in the value of the property. Find out more about this scheme.
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