Government to extend mortgage guarantee scheme to help first-time buyers

The mortgage guarantee scheme will continue to help first-time buyers get on the property ladder with just a 5% deposit, the Treasury has confirmed.

The scheme, which launched in April 2021 and was due to expire at the end of this year, will now run until 31 December 2023 amid concerns that falling house prices and an upcoming recession will decimate the number of low-deposit mortgage deals.

The scheme has already helped 24,000 households, of which 21,000 have been first-time buyers, and gives people with only a 5% deposit the chance to buy a house up to the value of £600,000. 

Low-deposit mortgages have become increasingly important in the last decade due to record house prices making it harder to save for a deposit.

It is good news for those struggling to save a big deposit who have seen the number of mortgage deals requiring a 5% deposit - seen as very risky loans by banks and building societies - drop from 283 on 23 September (the day of the mini Budget) to 130 as of 19 December. 

Chief Secretary to the Treasury, John Glen MP said: “For hard-working families facing today’s challenging economic conditions, it’s right that we continue to help them secure their first home or move into their dream house. Extending this scheme means thousands more have the chance to benefit, and supports the market as we navigate through these difficult times.”

What is the mortgage guarantee scheme?

The scheme allows banks and building societies to buy an insurance policy from the government for mortgage loans taken out by buyers with a deposit of less than 10%.

It means that if the borrower is then unable to pay one month, the government pays that month’s mortgage payment - though there are repercussions for borrowers if this happens.

The scheme also cuts the minimum amount first-time buyers need to purchase their own home in half. For example, to afford a £200,000 property, a buyer will need a £10,000 deposit rather than £20,000.

To be eligible for the scheme:

• You don’t have to be a first-time buyer
• The property has to be valued at less than £600,000
• Can only take out a repayment mortgage, no interest-only mortgage deals allowed
• You are not limited to new builds like the Help to Buy equity loan scheme
• It can’t be used for buy to let properties
• It is only for individuals, not companies
• You have to pass all the usual mortgage affordability checks

How does the mortgage guarantee scheme work?

To access the scheme:

• You need a deposit of between 5% and 9%
• When you apply for a mortgage you must apply for it with a lender that is participating in the scheme. This includes: Lloyds (opens in new tab), NatWest (opens in new tab), Santander (opens in new tab), HSBC (opens in new tab), Barclays (opens in new tab) and Virgin Money (opens in new tab).
• The government guarantees the portion of the mortgage over 80% (so, with a 95% mortgage, the remaining 15%), which sounds complicated but means if the borrower is unable to pay one month, the government pays that month’s mortgage payment 
• Lenders pay the government a fee for each mortgage they offer via the scheme - this fee likely increases the cost of the mortgage in some way for the buyer, either via interest rates or product fees
• The guarantee is for the mortgage lender not you - it protects the mortgage lender not you
• In every other way, the mortgage works like a normal mortgage and you will be subject to the usual affordability checks