The New 95% Mortgage Guarantee Scheme: An Introduction

Applying for your first mortgage in the current economic climate may feel like a near-impossible task, particularly given the high mortgage deposits required by the majority of lenders. If you’re a first-time buyer who is struggling to save for your dream home, don’t let the figures scare you away from transforming your home-owning dreams into a reality.

Here at Gemstone, our friendly team of experts will talk you through all of the your available options, including the new 95% Mortgage Guarantee scheme.

 What are the benefits?

Introduced by the UK Government in April 2021, the 95% Mortgage Guarantee scheme is designed to help first-time buyers hop onto the property ladder despite only having access to a smaller deposit. Over the course of the Coronavirus pandemic, many lenders chose to drop their 95% mortgage offers in favour of much lower rates, meaning that those without the financial capacity to pay a large deposit on their first property were effectively pushed out of the buyers’ market.

The new scheme, which is set to run until December 2022, enables first-time buyers with a 5% deposit to access 95% loan-to-value mortgages on their desired property. The mortgage that you choose to apply for must be between 91% and 95% of the value of the property you’re buying; whilst this limits your options to a certain degree, the conditions of the scheme require participating lenders to offer five-year fixed mortgages as part of the overall agreement. Not only does this offer you an element of financial security, but it also provides you with the peace of mind that your mortgage rate is not going to undergo any dramatic increases whilst you settle into your property.

Are there any conditions?

Although accessible, there are certain conditions that must be met in order for first-time buyers to use the scheme to its full advantage:

• The property you wish to purchase alongside the scheme must not exceed the value of £600,000 or be a new-build.
• You must still do a loan-to-income test and a credit score assessment before your application can be considered.
• You must also apply for a repayment mortgage as opposed to an interest-only option.

Are there any drawbacks?

Like any housing scheme, there are always a couple of potential drawbacks that are worth considering before you decide to submit your application, the largest of these being the change in mortgage rate. Whilst the majority of mortgage rates for mortgages under 90% tend to reach no higher than 2.9%, the rates for most 95% mortgages border the 4% mark- an increase that may impact your ability to keep on top of monthly repayments.

Due to the condition that first-time buyers opting for the 95% mortgage scheme must apply for a repayment mortgage, your monthly payments are likely to be considerably higher than those made in an interest-only mortgage. This is due to the fact that the first few years of repayments are weighted towards paying the interest, which is calculated using the present outstanding balance of the mortgage.

 

Since the introduction of the scheme, the number of lenders who are offering 95% mortgages has increased dramatically, meaning that comparison websites are bound to become flooded with hundreds of alternative deals all promising slightly different benefits. Let Gemstone guide you through the process and help you decide whether the 95% Mortgage Guarantee Scheme is right for you.