If you're interested in applying to the mortgage guarantee scheme, the lender isn't necessarily basing their rates on a 10% deposit.
Likewise, with Help to Buy, the mortgage provider receives a 25% deposit, split between your 5% contribution and the government support of 20%, so you can secure favourable rates using either of these schemes.
However, 95% is a high LTV value. While many more lenders are currently offering this product, it's still a potential risk - hence the government guarantee that means were you to end up in a repossession scenario, the lender could recoup their lost funds.
Here is what a 95% mortgage guarantee product looks like from a lender perspective:
- The lender has the assurance that the government will cover some of the costs if the lender loses money if the borrower doesn't keep up with their repayments.
- Properties would still have to be repossessed and sold, but the guarantee scheme would kick in if that sale didn't recover the outstanding amount.
- Government guarantees cover 95% of the lender's losses, but only on the value of the mortgage borrowing up to 80% of the property value.
For example, on a property worth £100,000 with a 95% LTV mortgage, the lender wouldn't have any guarantee on the first £80,000. If they were to make a loss, the government would guarantee 95% of the £15,000 balance.
Mortgage guarantees are available from April 2021 to December 2022 and are an alternative to the Help to Buy government mortgage scheme.
There are several lenders enrolled, with the scheme itself overseen by the British Business Bank.
The complication is that you can't simply apply to any participating bank with any more confidence than usual that they will accept your application.
Each lender will apply different criteria, so they'll need to assess eligibility and affordability and look at factors such as your employment structure, age, credit file, and property type.
