Mortgage Guarantee Scheme

Homebuyers latest: The UK Mortgage Guarantee Scheme. Image: AdobeStock

Homebuyers latest: The UK Mortgage Guarantee Scheme

A new mortgage guarantee scheme to help home buyers purchase property was launched on 19 April 2021.

Mortgage Guarantee Scheme

Homebuyers latest: The UK Mortgage Guarantee Scheme. Image: AdobeStock

The Mortgage Guarantee scheme helps prospective homebuyers who only have a small deposit and are therefore unable to get a mortgage. Under the scheme, lenders will be able to offer new 95% mortgage products.

Mortgage Guarantee scheme open to first time buyers and home movers

The scheme is open to first-time buyers and home movers across the UK. Homebuyers can purchase properties valued at up to £600,000 and both new-build and existing properties are eligible. The scheme will initially run until 31 December 2022. The government has confirmed that the end date of the scheme will be reviewed and may be extended.

The government provides lenders with the option to purchase a guarantee on the top- slice of the mortgage (over 80%). Lenders will also take a 5% share of net losses above this 80% threshold. This will help to ensure that lenders are not motivated to provide poor quality loans. Lenders will also need to pay the government a commercial fee for each mortgage in the scheme. The mortgage guarantee will be valid for up to seven years after the mortgage is originated.

The latest statistics on the take-up of the scheme have recently been published. Since the scheme was launched until the end of September 2021, 6,535 mortgages have been completed. Of these new mortgages, 84% were purchased by first-time buyers. During the period, the total value of mortgages supported by the scheme was £1.2bn.

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Recovery Loan Scheme

The Recovery Loan Scheme was launched on 6 April 2021. The scheme was originally timed to close on 31 December 2021 but as part of the Autumn Budget 2021 measures was extended until 30 June 2022.

The scheme is intended to provide further support to businesses to help them recover and grow following the disruption of the pandemic and the end of the transition period. Under the scheme, the government currently provides lenders with a guarantee of 70% on eligible loans provided to UK businesses. The scheme is currently open to all businesses, including those who have already received support under the existing COVID-19 guaranteed loan schemes.

Since 1 January 2022, the following rules apply:

  • The scheme is only open to small and medium sized enterprises with a turnover not exceeding £45m per annum.
  • The maximum amount of finance available is £2 million per business.
  • The guarantee coverage that the government will provide to lenders was reduced to 70% (was 80% prior to 1 January 2022).

A lender can provide up to £2 million via term loan, overdraft, invoice finance, or asset finance. There are further restrictions that the lender can place on loans over £250,000. Businesses that would like to benefit from the scheme are encouraged to make an application before the scheme comes to an end.

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