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Under the scheme, first-time buyers, home movers and previous homeowners with a 5% deposit have access to 95% loan-to-value mortgages (meaning the loan is for 95% of the property's value). In brief:
• The 95% mortgage operates as any standard mortgage would for you, the buyer. As far as you are concerned, there is NO difference between a 95% mortgage offered through this scheme and a 95% mortgage offered outside this scheme.
• For the mortgage lender however, the scheme guarantees that the Government will shoulder some of the cost if the lender loses money. Eg, if the borrower fails to keep up with mortgage payments and the property is repossessed, but the subsequent property sale does not recoup the outstanding mortgage amount.
(To be geeky, the Government would cover 95% of any losses a lender made on the amount of the mortgage above 80% loan-to-value. Eg, on a £100k property with a 95% mortgage, the lender would not have a Government guarantee on the first £80k, but the Government would then guarantee 95% of the remaining £15k).
• The scheme opened on Monday 19 April and will run until December 2022. The mortgage guarantee scheme is similar to the 5% Help to Buy Government-backed mortgage scheme, which operated between 2013 and 2017. Participating lenders have to offer five-year fixed mortgages as part of their range of 95% LTV products. Since the onset of coronavirus, 95% mortgages have been scarce – leaving many potential homeowners stranded. This scheme is therefore designed to encourage more lenders to re-enter the 95% market.
A TYPICAL ILLUSTRATION ON HOW BIGGER DEPOSITS CAN HELP WITH CHEAPER MORTGAGES.
Mortgages typically become cheaper at 90%, 80%, 75% and 60% LTV, demonstrated by the following table.
|How bigger deposits equal cheaper mortgages|
|Cheap deals||95% LTV (5% deposit)||90% LTV (10% deposit)||60% LTV (40% deposit)|
|2yr fix||3.69% + £594 fee On £150,000 property pay £9,054||2.99% + £1,007 fee On £150,000 property pay £8,196||2.99% + £1,007 fee On £150,000 property pay £8,196|
|5yr fix||3.45% + £35 fee On £150,000 property pay £8,537||3.59% + £999 fee On £150,000 property pay £9,054||1.28% + £1,025 fee On £150,000 property pay £4,354|
|2yr tracker||3.99% + £35 fee On £150,000 property pay £9,034||3.59% + £999 fee On £150,000 property pay £9,054||3.59% + £999 fee On £150,000 property pay £9,054|
|The table is based on a typical 25 year mortgage term. To work out the annual cost, the fee has been spread into the cost over the length of the deal (ie 2yrs or 5yrs). Rates correct as of April 2021.|