On Nov. 23, 2023, UK Treasury updated mortgage guarantee scheme page to reflect that the scheme is now open to new 95% mortgages until Jun. 30 June 2025.
The scheme deadline was extended from Dec. 31, 2023 by further 18 months by the Chancellor in Autumn Statement 2023, in order to continue to support homebuyers, movers with smaller deposits; scheme stays open to new accounts until Jun. 30, 2025.
Paper gives the background on why mortgage scheme needed, and how it will work.
Background
Covid-19 pandemic has meant reduction in availability of high loan-to-value (LTV) mortgage products, in particular to prospective homebuyers with only a 5% deposit.
As a consequence, many households have been unable to get onto the housing ladder.
Scheme to encourage mortgage lenders in high LTV lending to creditworthy customers.
Will give lenders government guarantee for portion of losses in event of a foreclosure.
Mortgage Guarantee Scheme
Scheme builds on government's previous commitments to support home ownership.
Based on 2013 Help to Buy mortgage guarantee scheme after 2008 financial crisis.
Government to give lenders option to purchase a guarantee on the top-slice of the mortgage, so will be compensated for a portion of net losses if property repossessed.
Guarantee will apply down to 80% of the purchase value of the guaranteed property.
It will compensate lenders for same losses and costs that they are entitled to recover from the borrower, to be calculated under FCA's Mortgage Conduct of Business rules.
Scheme lenders must also take a 5% share of net losses above this 80% threshold.
The Mortgage Guarantee will be valid for up to 7 years after origination of the loan.
Mortgage Eligibility
For residential mortgages, not second homes or buy-to-let, and for individuals only.
Property in the UK with purchase value of £600,000 or less, LTV between 91 and 95%.
Repayment mortgage, not interest only, taken out between dates specified by scheme.
Meet standard requirements for assessment of borrower's ability to pay the mortgage.
Other Requirements
Participating lenders must offer 5 year fixed rate product in their range of mortgages.
Open to lenders with permission to enter into regulated mortgage contracts in the UK.
Lenders need to pay government a commercial fee for each mortgage in the scheme.
National Savings and Investments will administer scheme on behalf of HM Treasury.
£3.9 billion cap on the size of the government's contingent liability under the scheme .
Effectiveness
Guarantee scheme open for new mortgage applications from Apr. 2021 to Dec. 2022.
Intended to be temporary, with review near end date to consider possible extension.
Apr. 2021 Rules Update
On Apr. 16, 2021, the UK Treasury updated the mortgage guarantee schemerules.
Nov. 2023 Extended Scheme Deadline
On Nov. 23, 2023, UK Treasury updated mortgage guarantee scheme page to reflect that the scheme is now open to new 95% mortgages until Jun. 30 June 2025.
The scheme deadline was extended from Dec. 31, 2023 by further 18 months by the Chancellor in Autumn Statement 2023, in order to continue to support homebuyers, movers with smaller deposits; scheme stays open to new accounts until Jun. 30, 2025.
