Mortgage Guarantee Scheme

What is the Mortgage Guarantee Scheme?

The Mortgage Guarantee Scheme was launched in April 2021 to encourage mortgage lenders to provide more 95% loan-to-value mortgages, which had become scarce following the coronavirus pandemic. Available until 30 June 2025, it’s designed to help people with low deposits get onto the property ladder. 

How does it work?

The scheme offers mortgage lenders a guarantee that the government will cover up to 95% of any potential losses over 80% of the original loan-to-value in the event of a repossession, where the property is sold for less than the outstanding mortgage. 

For example, on a property worth £200,000 and a 95% mortgage (£190,000), there’s no government guarantee on the first 80% (£160,000), but the government will guarantee up to 95% of the net losses on the remaining mortgage above this amount.

So, in reality, the ‘guarantee’ only applies for the benefit of mortgage lenders. From a consumer perspective, a 95% mortgage under the Mortgage Guarantee Scheme is no different to one outside the scheme. 

However, the government’s support for higher (riskier) borrowing should make more 95% mortgage deals available, giving people with low deposits a better chance to secure the lending they need for the property they want to buy. 

Another stipulation is that participating mortgage lenders must include at least one 5-year fixed-rate deal within their 95% mortgage product range, offering potential applicants a ‘stability’ option. 

Who is eligible for the Mortgage Guarantee Scheme?

The Mortgage Guarantee Scheme is available to first-time buyers and current homeowners who have a deposit between 5% and 10% (the minimum is 5%, but the lenders' guarantee can also be used for deposits up to 9.99%). 

The other eligibility criteria are as follows: 

• The property you buy must be to use as your primary residence and valued below £600,000

• Mortgage applications can be accepted on either a sole or joint basis

• Mortgage applications for second home, new-build, commercial or buy-to-let properties are not allowed

• Only repayment mortgages are allowed (interest-only options are not available)

In addition, you’ll need to pass the lender’s mortgage affordability assessment and standard lending criteria. To find out more about this, read our guide: What Mortgage Lenders Look For In Applicants. 

Which mortgage lenders are available?

Most, if not all, mortgage lenders now offer 95% loan-to-value mortgages as part of their product offering, including many well-known high street lenders. This means the original intention for introducing the scheme of giving people with low deposits a wider choice and, as a result, a better chance of success has certainly worked. 

However, it’s worth remembering that the scheme's guarantee element doesn’t make the interest rates, terms, or eligibility more attractive for prospective mortgage customers. 

For this reason, it’s highly recommended to seek the help of a mortgage broker (like us!) rather than approaching a lender directly. Your broker will be able to scour the market and find the lender offering the best terms for low-deposit mortgage deals. 

Get in touch, and one of our Mortgage Experts will contact you to start the process. 

How to apply

There’s no separate application process for the Mortgage Guarantee Scheme, which means you’re free to apply with any mortgage lender offering a range of 95% mortgage deals and choose the most suitable one. 

If the deal you select includes the guarantee, the mortgage lender will be comforted to know that it has additional security from the government to cover your loan, should it be needed. 

This is where using the services of an experienced mortgage broker can make all the difference. They will already know which lenders offer the most competitive terms for 95% mortgage deals, saving you a lot of time and, potentially, some money. 

Also, if your circumstances are not straightforward - perhaps you’ve had some bad credit issues in the past, or if you’re self-employed and have a more complex income structure - your broker will be able to identify specialist lenders who could be better placed to help.  

Will interest rates be higher for a 95% mortgage?

Higher loan-to-values usually mean higher interest rates. This is because a lender must pay for mortgage indemnity insurance for higher-value loans to recoup the loan's full amount in case of a default or repossession. 

As a result, interest rates for 95% loan-to-value mortgages will likely be amongst the highest available, making it particularly important you search for the right mortgage provider and check that the amount you want to borrow is affordable. 

You can do that right here by using our mortgage repayment calculator to see what the payments could be for the mortgage you’re looking for.  

What credit score do you need for a 95% mortgage?

There isn’t a universal credit score needed that automatically means you’ll be approved for a 95% mortgage (or any mortgage, for that matter). 

There are two reasons for that: one is that the three main Credit Reference Agencies (CRAs) each use different scoring systems, and secondly, every mortgage lender uses a range of criteria, with your credit score amongst them, before making a decision. 

For example, you could have the perfect credit score but fail a lender’s affordability assessment because your income was lower than needed to prove you can afford the monthly mortgage repayments. 

To learn more, read our guide: What Credit Score Do You Need For a Mortgage?

Can you get a 95% mortgage with bad credit?

It’s not impossible, but it could be more complex than for someone with a good credit score or higher deposit. It really depends on the type of bad credit issue you’ve had, how long since it happened, and the amount involved. Choosing the right mortgage lender could also make a big difference. 

Several mortgage lenders (all of which have strong working relationships with us) specialise in helping people with bad credit scores and assess applications on a case-by-case basis. You may have to pay a slightly higher interest rate and be more limited in how much you can borrow.

This could mean you’ll need a higher deposit to secure a mortgage, but it could be worth it if it means securing the property you want to buy. If you’re worried your credit history might hinder your chances of getting a mortgage, you should speak with a specialist bad credit mortgage broker before approaching a lender directly.