The Chancellor, Rishi Sunak, has just announced that buyers looking to purchase a property could now benefit from a new government backed mortgage scheme. Here CPS provides more details about the scheme and advice to buyers about what to do next.
What is the Mortgage Guarantee Scheme?
The scheme, which will be available from April 2021, means that first time buyers, as well existing homeowners, will only need to raise a deposit of 5% of the value of the property with mortgage lenders then incentivised to offer the remaining 95% through a mortgage loan.
What kind of property can be bought?
The property can be a new build or an older property, provided it is valued at under £600,000.
What is the guaranteed element of the Scheme?
This applies to the lender. As the mortgage loan is higher than many lenders have offered in recent times, and therefore a higher risk to them, the government is offering a guarantee to cover part of the mortgage loan should it not be repaid, in full, by the borrower.
How can I increase my chances of being accepted for one of these mortgage loans?
When applying for any mortgage it’s really important to understand your finances (what your total income and outgoings are) and have evidence to show that you will be able to repay the mortgage loan over the period of time (the term) you agree with the lender.
A good starting point is to understand what kind of property you’d like to buy, and what its value might be. You’ll then be able to calculate the deposit required (5% of the value) and how much loan you might need to borrow.
It’s then important to understand how much money you receive each month in terms of income, bonuses etc. and what outgoings you have and where savings could be made, if necessary, to pay for your mortgage loan. There are handy budget planners available that can help you in doing this or a good mortgage broker can also help.
Is this the only kind of government scheme on offer to help buyers?
No. There are other incentives that are available, The Help to Buy Equity Loan Scheme (2021 – 2023) for example, is another great option which also offers the chance to buy with a deposit of just 5%.