But buyers should go in with their eyes wide open. I t was billed as a way to give prospective homeowners access to the housing market. The move, launched last week, has prompted a flurry of new mortgage products on to the market, both within and outside the scheme. But buyers have been warned that they may be paying a higher interest rate for the new loans than if they would if they had a bigger deposit. And then there is the concern that the guarantee may prompt increases in house prices, leaving future generations having to borrow even more.
Fortunately, however, this could be changing thanks to the launch of a new government-backed mortgage guarantee scheme on 1 April The easiest way to do this is to use our comparison table above. You may find that a mortgage with a higher interest rate but lower fee works out cheaper overall, so do the maths carefully. You can also click on 'check eligibility' at the side of each mortgage in the table to find out if you'll be eligible. Mortgage lenders will take into account any other borrowing when working the amount of mortgage repayments you can afford.
Here's how to decide what type of mortgage you should get. Because you only need a small deposit, mortgages like this can be a good option for first-time buyers.
There are a few ways you can try to save a deposit for your first home. You can do all, or a mixture, of the following:. Borrowing from your family or friends. If you are using money given as a gift, bear in mind you will need the person gifting you the deposit to declare this is a gift and not a loan. Inheritance tax rules mean that there is a chance you will end up with an inheritance tax bill. Here's some more advice on how to save up a deposit. Here's how to find a mortgage to buy your first home and check you can afford it.
When you're choosing a 5 percent deposit mortgage, it's worth considering the following:. Whether this rate is fixed or variable can affect your monthly payments and how much you'll pay overall. If you pay a fixed rate You agree to the interest for a set length of time, which means you know how much your monthly repayments will be. If you pay a variable rate The interest tracks the Bank of England base rate and goes up or down in line with this. This means your monthly repayments can be higher or lower, depending on external economic factors.
You can get a repayment mortgage, which is more expensive each month but you are chipping away at the balance. This is the most common type of mortgage. Or, you can get an interest only mortgage, which is where you just pay off the interest. An interest-only mortgage is cheaper each month, but you don't bring your balance down at all. You'll still owe the full value of the house when your fixed term ends. These are less common and are deemed as riskier by lenders.
As well as the mortgage guarantee scheme, there are a couple of other schemes that can help you buy a home with a small deposit if you're a first time buyer.
With Shared Ownership, you buy a share of the property and pay rent on the share that you don't own. Lenders will look at:. Usually you'll be able to borrow around three or four times your salary when you get a 95 percent mortgage, UK wide. It might be a bit less than this if you're getting a mortgage with someone else and basing it on two incomes. Remember that every mortgage lender has different criteria to help them decide how much they'll lend and who they'll lend to.
However, saving as much of a deposit as possible will help lower your interest rate and reduce the amount you pay overall. Always try to choose a repayment mortgage if you can.
One of the biggest risks is getting into negative equity. You'd suddenly be left paying interest on a loan that's bigger than what the property's currently worth. It's usually the case that the bigger the deposit you put in, the better the mortgage deal you're offered. When you part-buy, part-rent a home through shared ownership, you can apply for a smaller mortgage amount — so your deposit could be lower, too.
Skip to: Home Content Footer navigation. Here to keep you moving Help to buy mortgages. What is the mortgage guarantee scheme? How does the mortgage guarantee scheme work? Who is eligible to apply for the mortgage guarantee scheme through us? Use our affordability calculator Get a more accurate estimate of how much you could borrow from us — takes about 5 to 10 minutes.
The government then provides a guarantee to mortgage lenders worth up to A similar mortgage guarantee scheme operated under Help to Buy banner but closed its doors at the end of , having run for four years. It helped , buyers onto the property ladder. Below is a live table of the kinds of mortgage deals that are on the market right now. Enter the cost of the property value you are looking at and how much of that sum you need to borrow.
This will automatically populate the loan to value box. You will then be shown relevant mortgage deals based on your entered criteria, for example a two-year fix, at that loan to value.
However, those in line to benefit most are likely to be first-time buyers who have not benefitted from house price inflation.
While the government said the scheme could apply to both new-build and existing homes, lenders are implementing their own restrictions around this — more details below.
You do not need to specifically ask for a deal under the scheme. Lenders offering deals under the Mortgage Guarantee Scheme are applying their own caveats — the main one being that new-build properties will not qualify. Another caveat is maximum loan size. Virgin Money restricts lending on flats and maisonettes to buildings of four storeys or fewer, and does not lend on ex-local authority blocks. Restrictions like these vary by lender, so be sure to check the small print and seek advice from an independent mortgage broker, should you need it.
You can either apply directly to a lender once you have found the deal you want, or you can seek the advice of a mortgage broker. This applies whether or not a deal is part of the Mortgage Guarantee Scheme. Some mortgage brokers provide a free service to customers and take their fee from lenders. Others may charge a fee for their service. Any high loan-to-value mortgage also leaves you more exposed to the risk of negative equity where you owe more than your property is worth in the event that house prices fall.
Critics also claim that the return of high loan-to-value mortgages could trigger artificial house price inflation. Lenders will usually only lend up to a maximum 4. This file details your personal borrowing history and can be accessed by lenders. It gives them an indication about whether or not you are a safe bet for a loan.
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