In the current financial climate, one of the biggest hurdles to homeownership for many young Britons is saving a large enough deposit to get a mortgage. The Mortgage Guarantee Scheme was launched in 2021, during the coronavirus pandemic, to address this.
The government program, which increased the number of 5% deposit mortgages available in the UK has been extended several times way beyond its original run date, and the latest news confirms that it will now become a permanent offering for mortgage applicants.
Here, we look at whether the Mortgage Guarantee Scheme’s transition to a permanent initiative offers any benefit to prospective homeowners.
What is the Mortgage Guarantee Scheme?
Back in 2021, when the pandemic was impacting the income of many in the UK, mortgage lenders became increasingly cautious, with many demanding larger deposits than they had in previous years. Low-deposit mortgage options became hard to come by, and dreams of home ownership were delayed for a lot of prospective first-time buyers.
The Mortgage Guarantee Scheme was introduced in June of 2021 in response to the impact that tighter lending restrictions had had on the market. Despite what the name perhaps suggests, the initiative was actually designed to protect mortgage lenders from the increased risk of lending during a time of mass job loss. It was intended that minimising their risk of loss would encourage them to reintroduce 95% loan-to-value mortgages, in turn, giving those with a small deposit a larger pool of lenders to borrow from.
So while, at the time, the knock-on effect of the scheme was that more mortgage options became available to those looking for a low deposit mortgage, the guarantee element offers no additional protection for buyers. While lenders can recoup their losses under the scheme, should a borrower become unable to pay their mortgage, the homeowner is still vulnerable to repossession.
Why is the scheme continuing?
Chancellor Rachel Reeves confirmed in her June Spending Review that instead of ending at the end of the month as planned, the Mortgage Guarantee Scheme would be re-launched in July permanently. She stated that this was to ‘ensure the consistent availability of mortgages for buyers with small deposits’.
However, many lenders began offering 95% mortgages without the aid of the scheme towards the end of 2021, and the availability of this kind of deal has only increased since then. There are even limited 100% mortgage deals available independently of the scheme, so how much influence the initiative has on lenders' deal offerings in its current guise is debatable.
Kellie Steed - Content Writer
Are any changes or improvements being made to the scheme?
Based on the original mortgage guarantee scheme that was introduced back in 2021, its existence seems to offer very little to current prospective homeowners. The majority of 95% mortgage deals that are available in 2025 would likely be here whether the scheme existed or not. However, it could be argued that it does offer some protection for low-deposit mortgages if another crisis in the vein of the coronavirus pandemic should hit the UK in the future.
A major criticism of the initiative, given its intention to assist homeowners onto the property ladder, is that new build homes are excluded. If this is addressed in July when the scheme is reintroduced, it could increase the mortgage options available to those looking to buy a brand new property.
Some other restrictions of the current scheme are the maximum loan value of £600,000, which predominantly impacts buyers in the South East of the country. It’s also only available to those taking out repayment mortgages, and cannot be used by buy-to-let mortgage borrowers. However, whether any of the terms or eligibility criteria of the Mortgage Guarantee Scheme will be broadened in July is yet to be determined.
If you’re looking for a mortgage but only have a small deposit, there are options available, as well as other schemes that may be more helpful to you. Speak to one of our experienced brokers to find out more.
