What is the Mortgage Guarantee Scheme?
The spring budget was announced this week and it included the news that the government is introducing a 95% loan to value (LTV) mortgage guarantee scheme to help all buyers with small deposits – including first time buyers and those looking to move up the property ladder.
The scheme is due to launch in April and will enable buyers to purchase a home priced up to £600,000 with a deposit of 5%. The aim is to encourage lenders to reintroduce low-deposit mortgages after they were largely withdrawn following the pandemic.
Lenders have been reluctant to offer low LTV mortgages and this resulted in first time buyers requiring a 15-20% deposit to secure a mortgage, pricing many people out of the market. In addition, house prices have been rising steadily since the property market re-opened as buyers’ priorities changed resulting in a spike in demand for more space, rural homes and access to outside space, especially for families who have been in lockdown together and working from home whilst home schooling. There has been an unprecedented property boom in Scotland and across the rest of the UK since June.
This scheme won’t only help people wanting to get onto the property for the first time, but will also help those who have struggled to trade up due to the size of deposit required by lenders.
Many of the large high street lenders will be backing the scheme, including Barclays, Santander, Lloyds and HSBC.
Under this scheme, the majority of buyers will be eligible as Rightmove has reported that 86% of properties currently listed for sale on its portal have an asking price of £600,000 or less and in Scotland the average house price is currently £161,522.
The scheme will help people to bring forward their plans if they were saving for a larger deposit and give a further boost to the property market. It will also help those who wish to trade up. Under the new scheme, the usual mortgage affordability checks will still apply.
Presently demand is outweighing supply and hopefully this will rectify the situation as people choosing to move up the ladder will result in more choice for first time buyers. Our advice is to consider moving now in case prices rise further.