The mortgage guarantee scheme, which allows first-time buyers to take out a mortgage with a 5% deposit, has today been extended again.
The news was confirmed in documents released this afternoon following the Autumn Statement. The mortgage guarantee scheme sees first-time buyers take out a mortgage with a 5% deposit - the Government then promises to cover some costs if your lender loses money.
The scheme was launched in April 2021 to increase the number of 5% deposit deals on the market, following the coronavirus pandemic. It was extended for 12 months last year and was due to end this year in December 2023. It will now run until June 2025.
The obvious perk of the mortgage guarantee scheme is that it allows first-time buyers to purchase a property with a smaller deposit - but it has been previously criticised for having more expensive rates compared to higher deposit home loans.
Martin Lewis' MoneySavingExpert.com (MSE) website has also previously said mortgage guarantee scheme deals are “not special” in terms of being different to other 5% mortgage deals. The team wrote: “The scheme offers lenders surety so they can offer more mortgages. But they aren't any better for borrowers – so pick solely based on which offers the best terms.”
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Mortgage guarantee scheme explained
The mortgage guarantee scheme allows would-be property buyers access to 95% loan to value (LTV) mortgages - meaning you need a 5% deposit - on properties worth up to £600,000. You must have a deposit equivalent to between 5% and 9%.
The Government then provides the guarantee for the mortgage to reduce the risk for the lender - for example, if the owner falls behind on payments and the property is repossessed, but the sale prices does not cover the outstanding mortgage amount.
The Government guarantees the portion of the mortgage over 80% - so, with a 95% mortgage, the remaining 15%. But the mortgage guarantee scheme, and 5% deals generally, are generally criticised for being more expensive as they come with much higher rates.
The bigger your deposit - so the more you can reduce your LTV ratio - the less your monthly repayments and fees will be. MSE website recommends buyers hold out for a 10% deposit if they can.
It is also worth noting that you still need to pass all the regular affordability checks and the property you're buying can't be a new build. The property must also be your main residential home.