A MORTGAGE scheme that is helping first-time buyers get on the ladder is set to end within weeks.
The mortgage guarantee scheme enables buyers to get a home with just a 5% deposit.
It can be used to buy any type of home as long as you don’t pay more than £600,000 for it.
The scheme provides a guarantee that the Government will cover some of a lender’s losses if a borrower can’t afford to repay their mortgage and the home is repossessed.
It’s been available for buyers since April 2021 but it’s scheduled to end on June 30, and there is no word yet on if or when a replacement will be launched.
The Government said in February it would launch a “new, permanent, comprehensive mortgage guarantee scheme” that would “open the door to home ownership for more young families and hard-working renters”.
Brokers say it’s possible the scheme won’t be replaced – but don’t be too disappointed just yet.
Between the scheme’s launch and the end of December last year, more than 53,000 mortgages were completed using it.
Data released last week shows the total value of mortgages supported by the scheme was £10.7billion.
But not every lender offering 95% mortgages has used the scheme, and many are still offering small or no deposit mortgages outside of the scheme.
Justin Moy, managing director at EHF Mortgages, said the scheme may not be replaced because of renewed confidence in the mortgage market.
“This was originally designed to help lenders stretch to 90-95% Loan to Value at a time when confidence within the market was low, so this looks to be a positive step without causing too many ripples with lenders,” he said.
Pete Mugleston, mortgage adviser and managing director at Online Mortgage Advisor, said losing the scheme would be “mixed news” for first-time buyers.
“On the one hand, the mortgage guarantee scheme was a useful way of helping first-time buyers get on the property ladder if they didn’t have a large deposit,” he said.
“But, given that a lot of lenders are now offering mortgages with a 5% deposit and lower, losing it isn’t as big an issue as it could have been.
“As the government has not given any further details about the scheme it promised in February, we could be waiting a while before we hear anything.”
The Sun contacted the Treasury for comment.
What other schemes are available?
Even if the mortgage guarantee scheme is replaced, there are other Government schemes available for first-time buyers.
You should look into each option thoroughly before going ahead with it and consider any disadvantages to the schemes.
These are some of the options available…
First Homes
First-time buyers can get a home for between 30 to 50% less than its market value through the First Homes scheme.
You can buy a new build home from a developer or a property from someone who’s used the scheme before and is now selling.
The scheme is only available in England and you’ll have to be 18 or older to qualify.
Your total household income must be £80,000 or less, or £90,000 in London.
You’ll also need to be able to get a mortgage for at least half the price of the home.
Shared ownership
If you can’t afford all of the deposit and mortgage payments for a home that meets your needs, you could consider shared ownership.
This is when you buy a share of the property and pay rent to a landlord on the rest.
You’ll also likely need to pay a service charge to maintain common areas shared between you and your neighbours.
Buyers can usually get a share of between 10 and 75% of the home’s full value.
You can buy more of the home later on in a process called staircasing.
However, some people who have used shared ownership have struggled to buy bigger portions of their homes due to being forced to pay increasing rents and service charges.
Lifetime ISA
People struggling to save for a deposit can get extra help from the Government by saving into a Lifetime ISA (LISA).
You can save up to £4,000 a year into it and the Government will give you a free bonus worth 25% of whatever you save.
You have to be between 18 and 39 to open a LISA and you can pay in and get the bonus until you’re 50.
It’s worth knowing that if you withdraw your money before you’re 60, it must be spent on buying your first home.
If you withdraw it for any other reason you’ll lose your bonus and also effectively pay a 6.25% penalty – so you’ll end up with less than you put in.
You should also be aware that you can only use a LISA on homes worth up to £450,000.
Right to Buy
This scheme was brought in during the 1980s and allows most council tenants the right to buy their council house at a discount.
There are different rules for Wales, Scotland and Northern Ireland.
You can make a joint application with up to three family members who have lived with you for the past 12 months.
If you rent from a Housing Association you may also have the right to buy it at a discount under the Government’s Right to Acquire Scheme.
Deposit Unlock
This lets you buy a new build home from any developer registered with the scheme as long as you have a 5% deposit.
The scheme is available to both first-time buyers and home movers.
It’s available on new-build homes up to the price of £833,250.
Deposit Unlock is currently available with participating lenders including Nationwide, Accord Mortgages and Newcastle Building Society.
What do lenders offer?
As well as Government schemes, some mortgage lenders have also been offering incentives for first-time buyers.
For example, Skipton Building Society offers a 100% mortgage deal that allows you to buy a home without a deposit.
A similar mortgage deal was recently launched by April Mortgages too.
Accord offers a £5,000 deposit mortgage while other lenders have been slashing their affordability rules.
Why you should be cautious with 100% deposit mortgages
These types of mortgages can open doors for people who wouldn’t be able to get on the housing ladder otherwise.
Experts have generally seen the reintroduction of 100% mortgages as a positive thing and this deal from April Mortgages does have rigid lending criteria.
But it’s important to remember this deal won’t be for everyone and they can be seen as quite controversial home loans.
100% mortgages mean you don’t need a deposit – but it also puts buyers at higher risk of negative equity. This is when your mortgage is more than the total value of your home, which can happen if house prices fall.
If you’re in this position it can make it harder to remortgage, sell your home and get competitive rates from lenders.
Typically they also have higher interest rates, making them more expensive.
The general rule is that the smaller your deposit the higher your monthly mortgage repayments will be.
Therefore because you won’t have a deposit, your monthly repayments are likely to be more expensive compared with someone who did put down a deposit.
You will need to be sure you can keep up with the payments and account for any potential financial shocks.
100% mortgages disappeared after the financial crisis in 2008, as they were seen a contributor to the sub-prime housing bubble and subsequent collapse.
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