Help to Buy explained Help to Buy mortgage guarantee

With a Help to Buy mortgage you can borrow up to 95% of the property's value

The Help to Buy scheme aims to help people with small deposits buy or move house. In this part of the scheme, the government offers lenders a guarantee on high loan-to-value mortgages, helping to unlock better mortgage rates for first-time buyers and home movers. 

Unlike Help to Buy equity loans, which can only be used to buy new-build homes, a Help to Buy mortgage with a guarantee can be used to buy any property.

Help to Buy mortgage guarantees are available in England, Wales, Scotland and Northern Ireland. The scheme currently runs until 31 December 2016.

In this guide, we explain what they are and if you're eligible for one.

  • For personal advice on whether a Help to Buy mortgage guarantee could help you get onto the property ladder, call Which? Mortgage Advisers on 0808 252 7987

Help to Buy mortgage guarantee: what is it?

Help to buy mortgage guarantees are available for loans of between 80% and 95% of a property’s value - what are often called ‘high loan-to-value’ or ‘high LTV’ mortgages.

Mortgage lenders who are participating in the scheme are able to get government-backed guarantees on every high LTV mortgage they offer. However, some lenders may also offer high LTV loans without the backing of this scheme - it would be worth speaking with your lender or mortgage adviser to find out.

The way it works is that you as the borrower put down a deposit of at least 5% and the government then guarantees any mortgage lending above 80% of the property's value. For example, if you took out an 85% mortgage the government would guarantee to repay your lender up to 10% of its value if you defaulted.

But all of this goes on behind the scenes, and to you as the mortgage borrower the scheme works in the same was as other mortgages. You are responsible for repaying the entire amount and if you get into arrears you are still at risk of repossession.

According to official government figures released in December 2015, 65,920 properties had been bought using the Help to Buy mortgage guarantee scheme since its launch in October 2013. Four in five (79%) of these homes were purchased by first-time buyers. 

Help to Buy mortgage guarantee: what are the risks?

With the government guarantee in place Help to Buy mortgages are less risky for lenders than ordinary high LTV mortgages. As a result lenders are likely to offer a wider range of 80% - 95% mortgages and at potentially better rates than they would have done otherwise.

Following the financial crisis there was a big drop in the number of high LTV mortgages available. For example, at the start of October 2013 there were only 44 95% mortgages compared to over 750 in 2008, according to Moneyfacts data. More choice in the market is good news for people struggling to save up a deposit.

Go further: 95% mortgages -we explain the risks and the conditions you'll face  

Help to Buy mortgage guarantee: can I get one?

The scheme is open to both first-time buyers and existing homeowners. The main requirements in order for you to be eligible are that you should:

• Have a deposit of at least 5%;
• Be looking to buy a home in the UK worth £600,000 or less;
• Be purchasing a property you intend to live in most of the time;
• Not let out the property or use it as a second home.
• Be looking for a capital repayment mortgage, interest-only mortgages are not included in the scheme

Help to Buy mortgage guarantee: should I get one?

Lenders participating in the Help to Buy scheme are free to set their own interest rates so there is no guarantee this strand of the Help to Buy scheme will be the cheapest option available to you.

If you’re looking for a mortgage of between 80% and 95%, it is also worth looking at mortgages from lenders who aren’t participating in the scheme. There are other options worth considering too, such as parent mortgages or Help to Buy equity loans.

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Your home may be repossessed if you do not keep up repayments on your mortgage.

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