Mortgage Guarantee Scheme 2021-2025

The government backed Mortgage Guarantee scheme, designed to help buyers with a 5% deposit buy a home, has been extended. Read on to find out if it could help you buy a house…

Angela Kerr Director, Editor

What is the mortgage guarantee scheme?

The mortgage guarantee scheme was launched in April 2021, to help prospective homeowners to buy a property worth up to £600,000 with only a 5% deposit.

The scheme was introduced to increase the supply of 5% deposit mortgages and stimulate the housing market after the pandemic by supporting lenders with a government-backed guarantee. Lenders using the scheme pay a fee for the Government guarantee which will then compensate them for a portion of their losses if the house is repossessed.

During the pandemic lenders had reduced the availability of high loan-to-value products, with just eight 5% deposit mortgages available in January 2021. Since the mortgage guarantee scheme’s launch, over 24,000 households have benefited from it and the government says it has ‘helped restore competition and consumer choice to the market, which has benefited businesses and boosted the market.’

Has the mortgage guarantee scheme been extended?

Yes. The mortgage guarantee scheme was initially due to end in December 2022 but it was extended until 31 December 2023. However, in the 2023 Autumn Statement, the Chancellor extended it again and the mortgage guarantee scheme will now run until the end of June 2025.

How to apply for government mortgage guarantee scheme

The government mortgage guarantee scheme isn’t something you specifically apply for – its purpose is to stimulate lenders to offer 95% LTV deals and was a big success in bringing deals back to the market after the pandemic. And it’s worth noting that many lenders don’t rely on the scheme for their 95% deals. For example NatWest has announced it has stopped using the scheme.

Some lenders like Barclays have details of the government mortgage guarantee scheme on their website and explain the criteria you’ll need to meet to get a 95% mortgage. But with other lenders you might not even know if your 95% mortgage is part of the mortgage guarantee scheme or not. However, David Hollingworth from award-winning fee-free brokers L&C says, ‘Even though many lenders don’t rely on the scheme, it feels like a sensible move to extend the scheme as it should only help ensure that lenders remain committed to offering products to those with smaller deposits despite the forecasts for prices to fall back in the near term.’

The best advice is that once you’ve found a property you want to buy, you should speak to a good mortgage broker. They’ll run you through your options and find the best mortgage for you.

Mortgage guarantee scheme eligibility

According to the government, any houses (new or old) are eligible for the current scheme as long as they cost under £600,000. However, different lenders have different criteria. For example, Barclays says you can’t use the mortgage guarantee scheme through them if you’re buying a new build property. And it says you can apply to borrow up to £570,000 for a house or £275,000 for a flat.

Which mortgage lenders offer 95% mortgages?

Lenders such as Barclays, NatWest and Lloyds Bank offer mortgages for those with as little as a 5% deposit, although rates will still be higher than for those with bigger deposits. For the best rates, our best first time buyer mortgage rates guide is updated monthly with the latest lenders offering mortgages for first time buyers with 20%, 15%, 10% and 5% deposits, as well as details of no deposit mortgages.

Every lender has different lending criteria so once you have found the deals you can afford, it’s vital to speak to an expert mortgage broker who will be able to find the best mortgage for your circumstances. Use our online mortgage finder, or speak to our award winning mortgage brokers at L&C for free expert advice, to start getting the best deal today

Is the mortgage guarantee scheme the best way to get a mortgage?

Not necessarily.  The guarantee did boost the number of 95% mortgages but it makes no real difference to you as a borrower whether a deal is backed by the government’s mortgage guarantee or not, so the mortgage interest rate, terms and any mortgage fees will be your guide as to the best deal with the deposit you have.  It is worth noting, that if you can push to a 10% deposit deals are considerably cheaper and there are more products on the market.

See our guide on types of mortgages for more detail on the different mortgage options to consider and how this affect your monthly mortgage payments.

Find out how much you could borrow with our mortgage calculators or get mortgage advice to see what your options are

What other help to buy first home is out there?

The Government has a range of other schemes to help you afford to buy your home such as Shared Ownership.  And since the Help to Buy scheme is now closed to new applicants, we look at what will replace Help to Buy.

Skipton has launched a 100% mortgage designed to help renters buy their first home if they have a minimum 12 month proven track record of paying rent, as well as, meeting other lending criteria. See our guide for more advice on how to get a mortgage with no deposit.

The Government is constantly updating its affordable housing programme and new first-time buyer mortgage deals are being launched all the time.

Deposit Unlock is a new scheme developed by the House Builders Federation to help first time buyers and home movers buy a new build home with just a 5% deposit. And there’s also the government First Homes Scheme where you may be able buy a home for 30% to 50% less than its market value when you meet certain criteria (although qualifying properties are very scarce).

Not quite ready to buy — see what steps you can take to save to buy

It’s always a good idea to save as much as you can in advance of buying, as this obviously reduces the amount that you will have to pay back in the long term and also gives you a much wider choice of cheaper mortgage products in the short term. Here are the steps you can take to get yourself in a position to afford to buy:

• You’ll need to work out how much you can afford to buy and, in return, how much you will need to save to be able to buy your first home. See our advice on saving for your deposit which helps you to work out your budget and tips on how to accelerate your savings.
• Getting your credit rating in order is key to mortgage success. See how to improve your credit rating before getting a mortgage
• If you are under 40, the Lifetime ISA could be a great way to boost your savings.  You can earn up to a £32,000 government bonus on your savings which you can use towards buying any home worth up to £450,000 or for your pension income after you reach 60.