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Market says MGS will mean fewer gifted deposits and more accessible routes to homeownership

Jake Carter

April 19, 2021

95 ltv Mortgage Guarantee

Market commentators have welcomed the launch of the government’s Mortgage Guarantee Scheme (MGS), which O’Neil Patient believes will result in less need for the ‘Bank of Mum and Dad’ and gifted deposits.

Adam Forshaw, managing director of O’Neil Patient, said the scheme will mean people are more likely to be able to buy independently, and less likely to need a helping hand for their deposit.

The scheme was first announced in Chancellor Rishi Sunak’s Budget speech, and aims to help first-time buyers or current homeowners secure a mortgage with a 5% deposit, in order to buy a house of up to £600,000.

The government is offering lenders the guarantee they need to provide mortgages that cover the other 95%, subject to the usual affordability checks.

Loans backed my the MGS are now available from lenders across the country, with Lloyds, Santander, Barclays, HSBC and NatWest launching mortgages under the scheme.

Meanwhile, various lenders have voiced their commitment to reintroduce higher LTV lending without relying on the MGS, including Yorkshire Building Society.

Forshaw said: “In recent weeks, lenders have been returning to the 95% LTV market, and the addition of the government scheme adds even more choice for those who only have a 5% deposit.

“Because of the lockdowns, first-time buyers have been able to save more money and are now in a better position to afford a deposit on a home.

“Our conveyancers are already seeing a rise in buyers with a 5% deposit and with new entrants coming into the market today we expect this to continue.

“This is an exciting move for the mortgage industry, and in particular for first-time buyers.”

Miles Robinson, head of mortgages at Trussle, agreed that the MGS launch is to be welcomed.

He added: “The launch of the new government-backed 95% mortgage deals is positive for buyers with low deposits, offering a more accessible route to homeownership.

“With lenders still viewing the high LTV market as risky, interest rates on the new 95% LTV deals are more expensive, with some close to 4%.”

In comparison, mortgage rates available to those with a 25% deposit can be around 1.19%.

Iain McKenzie, chief executive of The Guild of Property Professionals, added that in the climate of buoyant house prices, the scheme will go some way to levelling the playing field for younger buyers.

He said: “The resilience of the housing market in the face of coronavirus has seen house prices repeatedly hit new highs, and we expect this trend to continue in the coming months.

“There is the danger that first-time buyers could be increasingly priced out of the market, and this government scheme goes some way towards helping young people.”

McKenzie added that the nature of employment has also changed during the pandemic, and that those first-time buyers who are able to work from home could use this opportunity to find themselves a home in a cheaper part of the country.

He said: “Do shop around if you’re tempted by taking out a 95% mortgage, as some of the rates on offer for a 2-year fixed deal are 3.9% – more than 2% higher than the cheapest deals on the market.”

However, McKenzie also warned that the scheme does have its limitations, and that it has the chance to create some more negative effects for strapped buyers.

He said: “It is also worth checking whether the property you have your eye on is suitable for one of these new mortgages, as Halifax and Barclays have said that new-build properties will not fall under the scheme.

“While this is good news for property owners and first-time buyers, these measures could be like pouring gasoline on a roaring fire, potentially propelling house prices to higher and higher heights into the summer.”


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