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5% Deposit Mortgage Guarantee Scheme

Updated: Apr 12

Do you dream of buying a home one day? But saving up the deposit is virtually impossible.

With the Government’s 5% Mortgage Guarantee Scheme launched in April 2021, you can apply for a mortgage with just 5% deposit. To put that into perspective, it means you will be able to put down just £10,000 on a £200,000 property.

Who can Benefit from this Scheme?

Any buyer with a small deposit can get one of these Government-backed mortgages. They are NOT restricted to First-Time Buyers but can be used by anybody buying a main home, including previous homeowners and home movers.

However, there are requirements that need to be met to obtain this type of Mortgage. Such as:

· You must be buying a main residential home in the UK – These mortgages cannot be used for second homes or buy-to-let properties.

· The property must be worth £600,000 or less – You won't be able to apply if the property costs in excess of this.

· You must have a 5% minimum of the property's purchase price – That means you'll have a mortgage LTV of 95%.

· You must apply for a repayment mortgage – This means that you won't be able to apply for an interest-only mortgage.

· You'll need to pass a lender's Mortgage Affordability Criteria – Assessing your ability to pay the mortgage. Your application will be assessed using a loan-to-income and credit score test.

The mortgage must have started between 19th April 2021 and 31st December 2022

Why Is the Government Doing This?

When the COVID-19 pandemic hit in 2019, many lenders panicked and began to re-assess their mortgage products. This resulted in a number of lenders withdrawing a few of their mortgage products to help monitor the forthcoming demand.

The withdrawal of these products began to alarm the UK Government who saw these mortgages as a lifeline for First Time Buyers and those with growing families. In response to this, the government decided to offer a guarantee for 5% deposit mortgages that mitigated the risks that the lenders were concerned about.

Do I need to have a good credit history?

Yes, these mortgages are only available to borrowers who have a good credit rating. Here are some ideas to help improve your credit rating:

· Check your credit score with one of the well-known credit agencies – Manor Holmes has an affiliate relationship with Check My File. If you want a clearer definition of what will count as a liability, be sure to follow the link below to sign up to CheckMyFile. Try it FREE for 30 days, then £14.99 a month & cancel online anytime. CheckMyFile produces a detailed credit report that checks data from Equifax, Experian, TransUnion and Crediva.

· Pay off any debt on your file and ask previous creditors to remove old paid-up debt.

· Make sure your name and address are correct on the Electoral Roll.

· Pay your bills via direct debit to show payments are made on time.

How do I Get a 5% deposit mortgage?

To get the 5% mortgage scheme you can approach one of the lenders directly or if you prefer to find the most suitable mortgage product you should use a broker.

Our Mortgage broker will compare all of the 5% mortgage scheme lenders and find the best interest rate and product for your circumstances.

It is worth remembering that although the 5% deposit will be the same across participating lenders, the fixed rate terms and interest rates offered by each will be different.

For example, a 5% mortgage scheme with one lender might offer a 5-year fixed rate product that might not be suitable for you if you’re looking to get a 2-year fixed rate product.

Get in touch for an initial free, no obligation chat with our advisor about how we can help you.

25th October 2022

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