When calculating mortgage capacity for potential mortgage borrowers, those with low deposits (usually 5%) have, in the past, had very few options where mortgages were concerned. Following the financial crisis in 2008 few mortgage lenders would consider such high Loan to Value mortgages (95% loan with a 5% deposit) and for those who would consider this type of lending and in order to compensate for the increased risk to the lender, higher Interest Rates were charged.

In order to increase mortgage providers appetite for such lending the Government launched the Help to Buy Mortgage Guarantee Scheme on 1^st January 2014.  The Help to Buy Mortgage Guarantee Scheme works in exactly the same way as any other mortgage except lenders are able to purchase a guarantee from the Government to support high Loan to Value lending. The Government charges the lenders a fee for this guarantee. The scheme was designed to increase the lenders appetite for such lending and we have seen an increase in the number of mortgage applications being agreed based on low deposits/high Loan to Values. However, this scheme is only available for a few more months as it is due to end on 31st December 2016.

Could this spell the end of high LTV lending?

Mortgage Lenders have exposed themselves to more lending based on 5% deposits over recent years but it is hard to say whether access to the Mortgage Guarantee Scheme has been the reason for it. However, despite the availability of the Help to Buy Mortgage Guarantee lenders are starting to venture into the world subprime lending again. This should increase competition between lenders and make available more products for non-standard borrowers. As mortgage lenders appear to be more receptive to higher risk lending, borrowers with lower deposits should continue to see the availability of competitive mortgage products.

If you would like to find out more information about this scheme or any other Help to Buy scheme please visit: www.helptobuy.org.uk