The government launched the 95% mortgage guarantee scheme on April 1st, 2021 – allowing First Time Buyers and home movers to potentially purchase a property with just a 5% deposit. Lenders retracted nearly all their 95% mortgage products due to the pandemic, putting homeownership out of reach for many people, so this scheme is a welcome intervention by the government. In this guide, we’ll explain what the 95% mortgage guarantee scheme is and how you could use it to buy your dream home.
What Is A 95% Mortgage?
The percentage of the property value which will be covered by your mortgage is known as the Loan To Value (LTV). For example, if you buy a £400,000 house, with a deposit of £40,000, the LTV will be 90% – because 90% of the value of the home (£360,000) will be covered by your mortgage.
A 95% mortgage allows you to purchase a property with just a 5% deposit, so in the example above, you would only need to save a £20,000 deposit to buy a £400,000 home.
What Is The 95% Mortgage Guarantee Scheme?
Under the scheme, the government will guarantee the part of the loan which is over 80%, so the remaining 15% for a 95% mortgage. It’s important to understand that this guarantee is for the lenders only, meaning they will be partially compensated if you were to default on your mortgage. It does not guarantee the borrower, so you will still need to keep up with your repayments otherwise your home could be repossessed. The scheme allows lenders to give out larger Loan To Value mortgages without taking on the extra risk, and therefore the majority of mainstream providers are now offering 95% mortgages again. The scheme will initially run until December 31st, 2022.
Will I Qualify For The 95% Mortgage Guarantee Scheme?
The scheme is popular among First Time Buyers but it can also be used by home movers, and you can purchase a new build or an existing property under the scheme. You’ll still have to pass the lender’s affordability and credit checks, as with a regular mortgage, because the scheme does not guarantee the borrower.
To be eligible for the 95% mortgage guarantee scheme, you must:
- pass the lender’s standard affordability and credit checks
- be purchasing a property to live in yourself
- be purchasing a property worth no more than £600,000
- apply for a repayment mortgage (not interest-only)
- apply for a 91% – 95% LTV mortgage
The Bottom Line
The mortgage guarantee scheme has given lenders the confidence to offer 95% mortgages again, benefitting those borrowers who wish to purchase a property with just a 5% deposit. You will still have to meet the lender’s affordability and credit checks, as well as the other criteria listed above. It’s important to remember that the guarantee is for the lender only, so your home may be repossessed if you do not keep up with the repayments.
We’re whole of market mortgage advisors with over 30 years’ experience. Book in for your free consultationand we’ll answer any questions you may have about the scheme and find out how much you can borrow. As the criteria for each lender varies so widely, it’s important you seek the right advice before applying to make sure you find a deal that suits your needs, and to make sure you don’t get rejected which can damage your credit score. We’ll also liaise with your lender, estate agent, and solicitor to make sure the process of buying your dream home goes smoothly!
Book in for your FREE consultation to get going quickly – this can be done remotely via phone or video call if you’d prefer. We look forward to helping you!
