Mortgage Guarantee Scheme: How do 95% mortgages work?

The availability of high loan-to-value lending has seen a sharp reduction throughout the COVID-19 Pandemic. The reduction in high LTV mortgage availability has reduced the ability for potential home buyers who only have small deposits to access mortgage products.

The new government scheme enables mortgage lenders to offer loans up to 95% of a property's value. The government has confirmed that the scheme will be available from April, enabling homebuyers to purchase properties worth up to £600,000 with just a 5% mortgage. Both first-time buyers and existing homeowners can take advantage of it.

How does the 95% mortgage scheme work?

The new scheme works similarly to the old Help-to-buy mortgage guarantee scheme, which closed in 2017. (not to be confused with the Help to Buy equity loan scheme, which is still ongoing and is another way to buy with a 5% deposit).

Homebuyers taking out a mortgage should not see any functional changes at their end. It is lenders (banks and building societies) that are being incentivised to offer 95% mortgages. To do this, the government will guarantee outstanding loans if the buyer defaults and there is insufficient equity to pay off the loan and provide a margin for the lender.

Homebuyers will still need to prove that they can comfortably afford the monthly repayments after other essential spending has been covered. Our calculator can help you find out how much you can borrow.

How much deposit will I need for a 95% mortgage?

A 95% mortgage covers 95% of a property's sale price, so you will still need to find 5% of the sale price in the form of a deposit. Given that until recently, most lenders weren't offering anything more generous than an 85% mortgage.

However, given current UK property prices, even 5% can be a lot bigger than it sounds. Data from Rightmove, based on average house prices, shows that the UK average 5% deposit would be nearly £16,000 and even in the cheapest region (the North East) it would be nearly £8,000. In the South East this rising to over £20,000 and in London the figure is over £31,000. Saving these amounts, in their respective regions, will be a tall order.

Who is the scheme available to?

Any buyer with a small deposit can get one of these Government-backed mortgages. They are NOT restricted to first-time buyers, but can be used by anybody buying a main home, including previous homeowners and home-movers.

Stamp duty holiday extended until the end of June

The Chancellor has also extended the stamp duty holiday by three months. Originally set to end on 31 March, it will now run until the end of June. 

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