Mortgage Guarantee Scheme 2021: government help to buy plan revealed by Rishi Sunak – and 95% mortgages explained

Rishi Sunak announced the low-deposit morgage guarantee at the 2021 budget.

Wednesday, 3rd March 2021, 3:17 pm

Homebuyers will be able to get on the housing ladder for less following the reintroduction of low-deposit mortgages.

The chancellor of the exchequer announced the mortgage guarantee scheme on March 3 at the 2021 budget.

Mr Sunak announced that first-time buyers and some current homeowners would be eligible for a 95% mortgage under the initiative which is designed to increase the appetite of mortgage lenders to offer high loan-to-value lending to creditworthy customers across the UK.

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Boris Johnson has said he wants to turn generation rent into generation buy (Getty Images)

Here’s how the new scheme will work.

How does the mortgage guarantee scheme work?

A mortgage guarantee scheme aims to help aspiring homeowners with small deposits onto the property ladder, firing up the market in the process.

The government will incentivise lenders to provide mortgages to first time buyers, and current homeowners, with just 5% deposits to buy properties worth up to £600,000.

Lenders will be able to purchase a Government guarantee that compensates them for a portion of their losses in the event of foreclosure.

The scheme, which will be subject to the usual affordability checks, will be available to lenders from April.

It is based on the Help to Buy mortgage guarantee scheme introduced in 2013 by David Cameron and George Osborne, that ran until June 2017.

Who will be eligible for the scheme?

The new rates won’t solely be available to first-time buyers.

Anyone looking to buy a house for up to £600,000 will be eligible for the scheme

Who will provide the rates?

Rishi Sunak revealed that Lloyds, NatWest, Santander, Barclays and HSBC would all be offering the new rates from next month.

He added the Virgin Money will also offer the low rates at a later date.

All lenders under the scheme will offer mortgages fixed for at least five years as part of their range of products, providing options for consumers with smaller deposits who want the security and predictability of a mortgage with a fixed rate over a longer term.

Why is the scheme being introduced?

Speaking at the budget, Mr Sunak said this is “a policy that gives people who can’t afford a big deposit the chance to buy their own home.

He added: “As the prime minister has said, we want to turn generation rent into generation buy.”

The prime minister has previously stated: that he wants “generation rent to become generation buy and these 95% mortgage guarantees help to deliver this promise.

“Young people shouldn’t feel excluded from the chance of owning their own home and now it will be easier than ever to get on to the property ladder.”

Mr Sunak said previously: “By giving lenders the option of a Government guarantee on 95% mortgages, many more products will become available, helping people to achieve their dream and get on the housing ladder.”

Why have some criticised the scheme?

Some have suggested that an increase in demand will drive property prices up further.

Opposition leader Sir Keir Starmer criticised Mr Sunak pointing to the shortcomings of the previous government’s Help To Buy scheme.

He said: “It fuelled a housing bubble, it pushed up prices, and made owning a home more difficult. So much for ‘generation buy’.”

Marc von Grundherr, Director of lettings and estate agent Benham and Reeves, suggested that the move could prove “counterproductive”.

He said: “While Help to Buy in its various forms has helped homebuyers to an extent, it’s also done a good job of pushing house prices higher and homeownership even further out of reach for many.

“To roll this sort of counterproductive initiative out to the whole of the market wouldn’t be so bad if the government also addressed the issue of supply. If you have trouble climbing the stairs you need to add a handrail, not increase the size of the staircase. However, the government has, yet again, chosen to do just this.”

CEO of Enness Global Mortgages, Islay Robinson suggested that the scheme could hurt the health of the wider market.

She said: “95% mortgage products in any shape or form take the market into pretty overheated, dangerous territory and we’ve previously seen the results of this kind of precarious lending to those who aren’t really in the financial position to commit to it.

“Although many big lenders have committed to the government’s announcement today, it will be interesting to see just how many buyers are able to secure such a product when it comes to actually applying.”