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Last week, Chancellor Kwasi Kwarteng attended a meeting with senior executives of major mortgage lenders where they discussed extending the Mortgage Guarantee Scheme, which gave first-time homebuyers an opportunity to purchase their first property with a 95% loan-to-value ratio.

What is the Mortgage Guarantee Scheme?

The Mortgage Guarantee Scheme is one of many government schemes introduced over the past few years, which intended to make homeownership more accessible for first-time buyers. Average house prices across the UK have risen by 53% over the last decade alone, making getting on the property ladder significantly more difficult for those wishing to purchase their first property. 

The Mortgage Guarantee scheme was introduced in April 2021, increasing the availability of 95% Loan-to-value mortgage products - or in other words, bringing the minimum deposit requirement for first-time homebuyers to 5%. 

There were 6,535 mortgage completions since the scheme launched on the 19th of April, which represents 3% of all residential mortgage completions in the UK over that time frame. The programme is due to expire in December 2021; however, the government is currently considering extending this date. 

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How to qualify for the mortgage guarantee scheme?

Anybody who is a first-time buyer can qualify for the mortgage guarantee scheme. There is no application process, as you will be entered into the scheme automatically if you wish to purchase a house valued up to £570,000 with a 5% deposit. 

Your mortgage application process will be the same as it would be if you had a larger deposit amount, with the main variable being your mortgage duration and interest rate. Like any other mortgage applicant, you can take advantage of fixed-rate, and variable-rate mortgage products - however, interest rates may be higher on mortgage offers with higher loan-to-value ratios. 

Why is the government considering extending the mortgage guarantee scheme?

The UK is currently experiencing a housing crisis, as property prices keep rising. Statistics show that single buyers in their 30s on the median wage cannot afford to buy a home in around half of the local authority areas in England and Wales. 

The government is committed to making homeownership more accessible to the average UK citizen and is regularly introducing schemes and programmes that will help aspiring first-time homebuyers get on the property ladder. 

Extending the mortgage guarantee scheme would allow more first-time buyers with smaller deposits to step onto the housing ladder. In addition, the scheme has supported existing homeowners who wish to move, adding movement into the housing market and freeing up additional supply of affordable homes for First Time Buyers.

How is the mortgage guarantee scheme different from the Help to Buy Equity Loan Scheme?

The mortgage guarantee scheme makes it easier for aspiring homeowners to get onto the property ladder by giving them an opportunity to purchase property with only a 5% deposit instead of the usually required 10%. This opens up the doors to homeownership for people who may already have some existing savings and allows them to get onto the property ladder sooner.

In comparison, the Help to Buy: Equity Loan scheme allows first-time buyers intending to purchase a new built property to get an equity loan that will help cover deposit payments, and can be repaid at a later date. If you’re eligible for an equity loan, you can borrow up to 20% (40% if you’re in London) of the market value of a new build.

During the term of the equity loan, you only pay interest on the amount you borrowed. You do not pay off any of the loan itself. But you can choose to pay all or part of it off at any time. If you sell your home, you will need to pay off all of your equity loan.

Both the mortgage guarantee scheme and help to buy equity loan scheme are due to expire in 2022. The mortgage guarantee scheme does however have potential of being extended - which has not been confirmed yet, whilst the help-to-buy equity loan scheme is due to expire in October 2022.

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