How Can You Take Advantage Of The Mortgage Guarantee Scheme?
The difference between first-time mortgage and remortgage advice can be pronounced at times, as someone who is trying to get onto the property ladder does not have an existing property to help meet mortgage requirements.
Over the last twelve months, low-deposit mortgages reduced, due to the risks involved in offering high loan-to-value (LTV) mortgages during a time of financial instability, although this appears to be reversing.
A study undertaken by Moneyfacts.com found that over the past month, 95 per cent LTV mortgages have increased from just 5 up to 34, an increase of over 600 per cent and reaching close to the number of products available 14 months ago.
Aiding with this is a mortgage guarantee scheme that has been based on the Help To Buy scheme for first-time buyers to improve lender confidence. Time for mortgage guarantee scheme to explained and how to take advantage of it.
How Does It Work?
The way in which the scheme works is that the government will provide a guarantee for lenders, which effectively turns a risky 95 per cent LTV mortgage into an 80.75 per cent LTV mortgage, as the government will guarantee up to the top 15 per cent of the loan after the deposit.
This means that if a buyer defaults on their mortgage and the home needs to be repossessed, the government will compensate up to the maximum value of their guarantee, except for a 5 per cent share of the loss.
Any loss beyond this amount would be shouldered by the lender themselves, and the guarantee lasts for seven years, which given that mortgages are unlikely to default and even less likely to have less than 20 per cent of the equity stake in their home by that point means the guarantee does nothing.
How Do You Apply?
Whilst there is not the same “new build only” requirement that Help to Buy has, there are several requirements that need to be met to successfully get a mortgage guarantee scheme loan, most of which aimed to stop property managers from taking advantage of the scheme.
The first requirement is that it needs to require less than a 10 per cent deposit, which equates to an LTV of between 91 and 95 per cent.
As well as this, the mortgage must be for a single home, rather than a buy-to-let scheme or a second home, could not be an interest-only loan and could not be taken out by a company.
It also could only be used on homes that cost less than £600,000 and the application needed to be made between the start of April 2021 and the end of December 2022.
Outside of this, the mortgage could be applied for like any other and required a credit score test, a loan-to-income test and other assessments that made sure that a borrower could pay back the mortgage.
Finally, whilst the scheme itself could be used with other types of mortgage, any provider who wanted to use it had to offer a five-year fixed-rate mortgage in their scheme to ensure that buyers could have the security to pay back loans without the worry of fluctuating rates.