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Govt-backed 95% mortgage guarantee scheme will be open to all

Emma Lunn
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Emma Lunn

The government is expected to introduce a 95% loan to value (LTV) mortgage guarantee scheme.

But there are fears it will simply act to push already soaring house prices up and potentially move them further out of reach of first-time buyers as it is open to all borrowers and on all properties.

According to reports on the weekend the measure will be introduced by chancellor Rishi Sunak in the Budget on Wednesday, with it starting in April.

It is expected the Treasury will guarantee parts of the loans on properties worth up to £600,000.

The scheme is intended to encourage hesitant lenders back into the highest LTV brackets where product numbers have shrunk since the pandemic hit.

However, it appears lenders are already keen to re-enter the space of their own accord as YourMoney’s sister publication Mortgage Solutions reported last month with one mainstream lender making plans.

In this instance the main concern seems to be being overwhelmed with demand while also remaining responsible in lending practice.

Handful of lenders

Mortgage availability at 90% LTV has steadily increased with a total number of 277 products live in February according to Moneyfacts, up from just 44 in September.

But this is still down on the pre-pandemic level of 776 in February 2020.

In the 95% bracket product numbers are even smaller and many require additional support such as joint borrower and guarantors.

A similar mortgage guarantee was launched coming out of the credit crisis but was only applicable to new build homes through the Help to Buy scheme.

By the time it had closed to new applications in 2016 most of the main high street lenders had already left and resumed fully underwriting the loans themselves.

Mark Harris, chief executive of SPF Private Clients, noted smaller building societies had been the most common entrants, but these typically were time limited or had geographic restrictions.

“For those with little in the way of deposit, finding a 95% LTV mortgage has been pretty much impossible in recent months,” he said.

“The only other current option to obtain a mortgage at this level is to call upon a third party, typically a parent, to provide extra security in the way of deposits or equity within the guarantor property. Not everyone is in a fortunate position to do so.”