If you’re dreaming of moving home but find the idea of saving for a large deposit overwhelming, this scheme might be a perfect fit for you.
In this guide we walk you through the Mortgage Guarantee Scheme, explain how it works, and discuss who can benefit from it.
Whether you’re buying your first home or taking another step on the property ladder, this guide will give you clear and straightforward information to help you see if this scheme fits your home ownership plans.
What is the mortgage guarantee scheme?
The mortgage guarantee scheme was originally launched in April 2021.
The aim was to stimulate a sluggish housing market and encourage lenders to start offering 95% mortgages again.
The scheme is backed by the UK government, and lenders have the choice to participate, or not.
The lenders benefit from
a government backed mortgage guarantee.
It allows lenders to offer mortgages with just a 5% deposit from the buyer, but at a much lower risk. For lenders, this means they can help more people buy homes without significantly increasing their risk exposure.
The borrowers benefit from
more 95% mortgages being made available.
Buying a house requires a significant deposit, often around 10% of the property’s value. This scheme allows you to buy a home with only a 5% deposit. It’s particularly helpful for first-time buyers or those who find it hard to save a large deposit.
95% mortgages are riskier for banks as they are more vulnerable to falling property prices.
Falling house prices could mean that some borrowers owe more than their home is actually worth. This is called negative equity.
During the 2020 pandemic, most lenders withdrew 95% mortgages due to the increased risk. The guarantee scheme, introduced in April 2021, encouraged lenders to offer these high Loan-to-Value (LTV) mortgages again by providing a government-backed guarantee.
The scheme was originally intended to be just a temporary measure, from April 2021 to December 2022.
It was first extended to December 2023 and then again to June 2025.
How it works
To the borrower, there is no obvious difference between these mortgages and a ‘standard’ mortgage.
But behind the scenes it is very different.
If you buy a house with only a 5% deposit it means that the lender stands to lose up to 95% if it all goes wrong. It is a lot more risky for them than it is for you. Not all lenders want to take this additional risk, preferring to deal with borrowers who have a 10% deposit, or more.
You will find more useful information in our Guide to Deposits
The guarantee removes some of the lenders risk, as it will compensate them if they repossess the property and lose money as a result.
Participating lenders will need to ‘buy’ the guarantee on each 95% mortgage they sell, paying a fee to the government each time.
Inevitably, the cost of this fee is usually passed to the borrower in higher mortgage fees.
The guarantee is for the lender, and does not protect you in any way.
If you fall behind on your repayments, the lender will still be able to repossess the property, as they do now.
Who is eligible to apply?
You are eligible to apply for one of these mortgages if you are buying a home to live in, up to the value of £600,000.
£600,000 relates to the purchase price and not the mortgage amount.
As lenders set their own criteria, there are some wrinkles to look out for.
Property type
The scheme will allow any property to be purchased as your main home. However, not all lenders allow new build properties. And of course, not that many will consider non-standard construction homes.
Repayment method
The guarantee scheme only applies to capital repayment mortgages. So you will be unable to choose an interest-only option from any lender.
Main residence
You are only allowed to buy a property that you will live in, as your main residence. This means that any type of second property or buy to let is not permitted.
Loan to value LTV
The mortgage you’re applying for must be for 91% – 95% of the purchase price. This equates to a cash deposit of 5%-9%.
Fixed rates
All lenders must offer a five year fixed rate product as part of their range of mortgages offered under the guarantee.
Portability
Not all lenders will allow you to port (transfer) your mortgage to a new house if you move home during the fixed rate term.
How to apply for the mortgage guarantee scheme
First off, you don’t need to ‘apply’ for the guarantee.
To take advantage you just need to apply for a 95% mortgage from a participating lender.
They will then secure the guarantee as part of the mortgage set up process.
Not all lenders choose to use the guarantee scheme, despite them offering 95% mortgages. They just choose to accept the extra risks themselves.
And lenders are not required to tell customers that their mortgage comes under the scheme. So some lenders mention this in their product details, while others do not.
Remember, the guarantee only provides a benefit to the lender.
Is the guarantee scheme the best way to get a mortgage?
Not always.
Although the scheme has boosted the number of 95% mortgages, it makes no difference to a borrower.
The guarantee is for the benefit of the lender only.
You should concentrate on comparing the interest rates and mortgage fees from all lenders who will accept your size of deposit.
Mortgage alternatives
If you simply require a mortgage with a 5% deposit, then you just need a lender willing to offer you the remaining 95%.
The lender does not need to be part of the guarantee scheme.
In terms of other ways to help you buy a home, here are a few ideas:
10% deposit schemes
No we are not going mad! If you can save up a larger deposit then you will have access to more lenders, cheaper deals and your mortgage repayments will be lower.
Shared Ownership
Shared ownership schemes allow you to buy a share of a home, with a mortgage, while paying rent on the part you don’t own.
Guarantor Mortgages
With a guarantor mortgage a family member or friend will become part of the mortgage and guarantee the repayments.
JBSP
Joint Borrower Sole Proprietor is a mortgage that allows a family member to be named on the mortgage, so you can borrow more.
Family deposit mortgage
With a family deposit mortgage a close relative uses some of their cash savings to boost your borrowing power, potentially up to 100% LTV.
Gifted deposit mortgage
One of your family could give you the money you need for a cash deposit. This is a gifted deposit and the lender needs to be happy that it is a true gift.
No deposit mortgage
It is possible to get a no deposit mortgage but you will need some help from your family to achieve it.
How a broker can help
If you’re considering the Mortgage Guarantee Scheme, an independent mortgage broker can offer some expert guidance.
They can help you understand how the scheme works and if it’s the right choice for you.
As a broker, they can compare the Mortgage Guarantee Scheme deals with other mortgage options, helping you see the benefits and drawbacks of each.
If your financial situation is unique, like being self-employed or having an irregular income, a broker’s advice is especially beneficial. They know how to present your finances in the best light to the right lenders.
Let Respect Mortgages match you to a mortgage specialist. One who understands the guarantee scheme and has access to over 100 lenders.
Just call us on 0330 030 5050 or send us a message.
The mortgage deal is likely to have early repayment charges. If you move and change the lender you will have to pay the exit fees. Alternatively, some mortgages are portable, so you basically take it to your new home.
The scheme is for first time buyers and those people moving home.
The scheme has a maximum property price of £600,000.
This means that the maximum 95% mortgage will be £570,000.
No, the scheme is available to any type of residential property. However, each lender will have their own property types that they favour.
Guarantor mortgages are still available, along with the very similar JBSP mortgage.
Yes, joint mortgages are acceptable. But the applicants must use the property as their main home, so a joint mortgage with your parents is probably not going to be accepted, unless you all live together.
Yes, there are no restrictions on occupation, so self-employed mortgages are available. Just remember that each lender will still have their own eligibility criteria in place.
There are no explicit fees to pay by the borrower in relation to the guarantee.
However, the lender is free to charge the normal mortgage fees, and these may be higher than a non-guaranteed mortgage.
How to get mortgage ready
Getting your finances in order before applying for a mortgage is one of the best things to do.
Whether you are buying your first home or thinking of moving somewhere new, there are a number of ways that you can improve your situation and speed up the mortgage process.
