New mortgage guarantee scheme
One of the measures announced as part of the March 2021 Budget was the introduction of a new mortgage guarantee scheme to help home buyers purchase a property. The new scheme is designed for prospective home buyers who only have a small deposit and are therefore unable to qualify for a mortgage. Under the new scheme, lenders will be able to offer new 91-95% mortgage products.
The new scheme will be open to first time buyers and home movers across the UK. Home buyers will be able to purchase properties valued at up to £600,000 and both new-build and existing properties are eligible. The scheme will initially run from April 2021 to 31 December 2022. The government has confirmed that the end date of the scheme will be reviewed and may be extended.
The government will provide lenders with the option to purchase a guarantee on the top slice of the mortgage (over 80%). Lenders will also take a 5% share of net losses above this 80% threshold. This will help to ensure that lenders are not incentivised to originate poor quality loans. Lenders will also need to pay the government a commercial fee for each mortgage in the scheme. The mortgage guarantee will be valid for up to seven years after the mortgage is originated.
There will be a cap on the size of the government’s contingent liability under the scheme of £3.9 billion although this is not expected to impinge on delivery of the scheme. The scheme is similar to a previous Help to Buy: mortgage guarantee scheme that closed to new applicants on 31 December 2016.