Government Launches Mortgage Guarantee Scheme

At Budget 2021, Chancellor Rishi Sunak announced a mortgage guarantee scheme that aims to help first time buyers or current homeowners secure a mortgage with a 5% deposit. This measure is designed to ensure the property market remains buoyant and the property sector healthy after a tough year for many businesses.

Beginning on 19th April 2021, the scheme is set to run until at least December 2022. Through the promise of partial Government guarantees, many high-street lenders have agreed to participate in the scheme, including Lloyds, Santander, Barclays, HSBC and Virgin Money.

What is the mortgage guarantee scheme?

Due to financial uncertainty created by the Covid-19 pandemic, lenders removed many of their 95% Loan-to-Value mortgage products. This has left many credit-worthy households unable to get onto the property ladder.

The mortgage guarantee scheme is designed to encourage lenders to resume selling these products. It gives them the option to purchase a government guarantee on mortgages where a borrower has a deposit of 5%. This means that if the borrower later defaults on payments, the government will partially compensate the lender, generally at 15% of the overall loan amount. It is similar to the 2013 Help to Buy: Mortgage Guarantee Scheme, which helped to restore the high Loan-to-Value market after the financial crisis.

To qualify for the scheme, the house in question must be valued at £600,000 or less. Whilst it will benefit many first time buyers, it’s still worth remembering that those who are able to stretch to a 10% deposit will likely save money in the long-term. It’s also important to note that, in order to access a mortgage through the scheme, borrowers must continue to pass all the usual affordability tests set out by lenders, the FCA and Financial Policy Committee (FPC). In addition, once a mortgage has been taken out under the guarantee, borrowers will be responsible for making repayments in the same way as a normal mortgage.

What are property buyers’ other options?

The Government offers various home ownership schemes in addition to the mortgage guarantee scheme. These include:

  • Equity Loan: A low interest government loan for first-time buyers to put towards the cost of buying a newly built home.
  • Shared Ownership: Gives buyers the option to buy a share of their home (between 25% and 75%) and pay rent on the remaining share.
  • First Homes: A new scheme designed to provide homes for local first-time buyers and key workers with a 30% discount against market value. It is expected to be rolled out at some point in 2021.

How MCC Accountants can help

MCC Accountants have been working within the property sector for more than a decade and have helped many Manchester and Salford based businesses access accountancy services tailored for property professionals. We are now opening branches in Cheadle, Bolton and Liverpool.

Our team of Salford Property Accountants can guide you through the many Government schemes and tax rules that can be accessed by property businesses. We can also ensure that you are aware of all of the legislation available to your clients so that you can assist them in making informed decisions on how to finance their house purchase.

Call us on 0161 707 1500, or complete our online enquiry form and we will be in touch shortly.