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What is the mortgage guarantee scheme?

Jenni Hill
Last Updated 1 July 2024

If you’re struggling to save a deposit for your first home, the mortgage guarantee scheme could help you borrow up to 95% of the property’s value, meaning you’ll only need a 5% deposit. But how does the mortgage guarantee scheme work and is it the only low-deposit scheme out there?

In this guide

What is the mortgage guarantee scheme?

The mortgage guarantee scheme was created by the government to increase the number of mortgages available to buyers with just a 5% deposit saved up. It was first introduced back in 2021, and the current Conservative government recently extended the scheme until July next year. However, as part of their housing policy for the 2024 general election, the Labour Party have promised to make the Mortgage Guarantee scheme permanent under a new name - “Freedom to Buy”.

Read more: What impact will the election have on mortgage rates?

You might also like: How to buy a home with a small deposit

How does the mortgage guarantee scheme work?

The mortgage guarantee scheme works by the government guaranteeing a percentage of the mortgage. If you were unable to keep up with your mortgage repayments and your lender repossessed your home, the government would reimburse your lender for a percentage of their losses. This reduces the amount of risk for the lender, giving them the confidence to offer mortgages with a higher Loan to Value ratio (LTV). The main advantage of the mortgage guarantee scheme for you as a buyer is that you could find it easier to get a mortgage with a small deposit, as you typically only need 5% of the property purchase price saved up to be eligible for the scheme.

See all the alternative ways to get on the ladder here, or create a Tembo plan for a personalised recommendation.

Is the mortgage guarantee scheme still available?

Yes, the mortgage guarantee scheme is still available and is currently available until June 2025. Although Labour have promised, if elected in the general election, they will make the scheme permanent. However, as 95% LTV mortgages have become more widely available, many lenders don't use the mortgage guarantee scheme as they are happy to lend to low-deposit buyers anyway. The other thing to consider is you will still have to pass the lender’s affordability checks to show you can afford mortgage repayments, irrespective of any government guarantee. 

Learn more: What are the alternative ways to buy a home?

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How much can you borrow on the mortgage guarantee scheme?

You can borrow up to £570,000 on the mortgage guarantee scheme, but some lenders may offer you a smaller loan based on their affordability criteria. Typically, you can borrow up to 4.5x your household income for a mortgage, but some borrowers will be offered less than this based on their creditworthiness, as well as other factors like if you’re self-employed. Other borrowers can borrow 5-6x their income if they meet certain criteria.

Learn more: How big of a mortgage can I get?

Which lenders do the mortgage guarantee scheme?

A number of mortgage lenders are willing to offer 95% mortgages through the mortgage guarantee scheme including:

  • Lloyds
  • Barclays
  • Halifax
  • Bank of Scotland
  • Natwest
  • Santaner
  • HSBC
  • Virgin Money

A lot more lenders offer 95% LTV mortgages that are technically not part of the mortgage guarantee scheme but offer the same benefit - being able to purchase a home with just a 5% deposit. 

Learn more: Low deposit mortgage schemes for first-time buyers

Is the mortgage guarantee scheme only for first-time buyers?

No, you don’t need to be a first-time buyer to use the mortgage guarantee scheme. You can use it to buy a home with a small deposit even if you’ve bought a property before or inherited a relative’s home.

There are other criteria to be aware of:

  • You must have a deposit of between 5% and 9% of the property’s purchase price
  • You must buy a home worth £600,000 or less in the UK, which you intend to live in yourself. You can’t use the mortgage guarantee scheme for a second home or buy-to-let property.
  • It can’t be a new build. New build homes often lose value in the first few years after being built, making lenders see them as higher risk
  • You can only use a repayment mortgage, rather than an interest-only mortgage.
  • You need to meet the lender’s mortgage affordability criteria. Each lender will have their own requirements.

Is a 95% mortgage worth it?

Whether a 95% mortgage is worth it depends on your individual circumstances. For many people, a 95% mortgage is their only chance at getting on the property ladder. We often work with first-time buyers who’ve been unable to save a traditional 10-20% deposit because they’re spending hundreds or even thousands of pounds on rent each month. For them, a 95% mortgage can be the difference between renting and buying. 

A 95% mortgage can also be worth it for existing homeowners. Take for example a couple who are going through a breakup or divorce. Once the family home has been sold and the equity has been divided, both people can find it hard to afford a suitable property individually. A 95% mortgage can sometimes be a better alternative to renting or settling for a home that doesn't meet your needs.

A 95% mortgage won’t be right for everyone, though. They tend to come with a higher interest rate than mortgages with an LTV of 90% or lower. By putting down a bigger deposit from the outset, you can usually access more competitive interest rates


Top Tip

Look for a 95% mortgage that lets you make overpayments without any penalties. By overpaying your mortgage when possible, you can reduce the amount of interest payable and become debt-free sooner.

What are the alternatives to the mortgage guarantee scheme?

You may be able to get a 95% mortgage even without the mortgage guarantee scheme. In some cases, you can even borrow 100% of the property’s value! If you can prove that you’ve paid your rent and household bills in full and on time for 12 months, you may be eligible for Skipton Building Society's Track Record Mortgage. If your application is approved, you’ll be given a 100% mortgage, no deposit needed. 

Another option is a shared ownership mortgage. Instead of buying a house with a deposit and mortgage, you’ll buy a share of a home and pay rent on the rest. You’ll need a much smaller deposit than you would with a traditional mortgage, and you won’t need to borrow as much.

There are also some guarantor mortgage options like a Savings as Security mortgage could help you get on the ladder with a helping hand from a family member.

On average, our customers boost their budgets by £82,000!

At Tembo, we specialise in alternative ways to make home happen for first-time buyers, remortgagers and home movers. To discover all the ways you could get on the ladder, create a free Tembo recommendation.

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