After months of waiting, the government released its autumn budget in November and it contained some good news for first-time homebuyers.
The mortgage guarantee scheme is extended by 18 months
Many house hunters were waiting to hear what the government planned to do about the mortgage guarantee scheme.
This scheme helps buyers to secure mortgages with a 95% loan-to-value (LTV) ratio of 95% on properties worth up to £600,000. A 95% mortgage means that house hunters only need to save up a deposit of 5% to apply for a mortgage.
If, for example, buyers are looking at a house worth £300,000 then they’ll only need a deposit of £15,000 rather than the more usual £30,000.
The mortgage guarantee scheme is popular with first timers
First introduced in 2021, the mortgage guarantee scheme has helped many buyers to take their first steps on the property ladder, with more than 80% of scheme users being first-time buyers.
Originally, the scheme was set to end by December 31 2023 after an initial 12-month extension, leaving lots of first-time buyers and deposit savers wondering if they were too late to take advantage of it.
Thankfully, Chancellor Jeremy Hunt had good news for hopefuls as he announced that the scheme would run for a further 18 months, giving house hunters more time to look for their first – or next – home.
How the government’s mortgage guarantee scheme works
The mortgage guarantee scheme works by offering lenders the option to buy a guarantee on any 95% mortgages they offer to borrowers. Low-deposit mortgages are seen as riskier so many lenders prefer to avoid them.
This guarantee compensates mortgage lenders for some of the potential net losses they may face as the result of a property being repossessed.
Lenders can buy a guarantee to cover anything from 80% to 95% of the value of the mortgage. If borrowers get into difficulty and the property is repossessed, the government covers that percentage of the lender’s loss. Lenders still retain a 5% risk with every low-deposit home loan they issue to encourage more responsible lending.
