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Government mortgage guarantee schemes

Written By:
Myles Robinson - Expert Finance Advisor

Posted: Feb 15, 2023

Government mortgage guarantee schemes

The government’s mortgage guarantee scheme such as Help To Buy or Shared Ownership may give you an edge over the competition and make it easier to house hunt. However, even if you use one, it is still a good idea to seek specialist mortgage advice before you start looking.

Our mortgage brokers can help you select the right mortgage guarantee scheme and assist you with your mortgage application. Speaking with a mortgage lender could potentially save you money and time.

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What is the Government’s mortgage guarantee scheme?

Let’s begin with the basics. Two British government initiatives could be called the “UK government-backed mortgage scheme”. These are schemes to help people move up the property ladder (such as Help to Buy) and programs to support existing homeowners.

We’ll cover both types in this article.

What government mortgage assistance is available to homebuyers in the UK

Customers often ask us, “What government mortgage programs are available for UK homebuyers?” “How does a government mortgage guarantee scheme work?”

So we’ve provided a list of the most important ones…

  • How to Buy
  • Shared Ownership
  • Right To Buy/ Rights to Acquire
  • Starter Home scheme

For more information on these government-backed loan programs, please read the following or send an enquiry to our mortgage brokers so they can talk with you over the telephone.


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Help to buy mortgages

To help people with a low deposit to get on the property ladder, the government launched the Help to Buy Mortgage scheme in 2013. It’s available to first-time purchasers and existing homeowners who wish to purchase a new property for less than £600,000.

What is the operation of the government’s Help to Buy Mortgage scheme?

Successful applicants can get an equity loan through Help to Buy. If they have a minimum 5% deposit, customers can borrow 20% of the property’s purchase cost interest-free for five years.

If you put down the minimum deposit, you would only need a mortgage to pay 75% of the property’s worth, plus the equity loan.

Help to Buy has some restrictions. If you are…

  • You are looking to buy a second home or property you intend to rent.
  • You are looking for an interest-only mortgage (Help To Buy is repayment only).
  • A property you buy has a purchase price exceeding £600,000.00 in England. The limit in other areas of the UK is different.

What interest rate will I have to pay on my Help to Buy equity loan?

You will not pay interest for the first five years of a Help To Buy equity loan. However, in the sixth year, you will be charged 1.75%.

The fee you pay after that will increase with inflation, based on the Retail Prices Index, plus an additional 1% each year. You will have to repay the equity loan and a portion of the increase in the home’s value when you sell the property.

For more information about the Help to Buy program, visit its official website or submit an enquiry.

Our brokers will help you to get the best mortgage deal if you decide to go ahead.


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Help to buy an ISA

*UPDATE: New applicants are now barred from the Help to Buy: ISA program. Our guide provides more details.

The government launched Help To Buy ISAs as part of an overall initiative to assist first-time buyers in getting a mortgage.

Signing up for this mortgage program is a great incentive. The government will give you an additional 25% on savings you make in your ISA up to a maximum of £3,000.

For every £200 that you deposit, you will receive an additional £50 to use towards your home. You can get Help to Buy ISAs through credit unions, banks, and building societies. This is available to individuals who are first-time buyers, not households. If you save enough, you could both sign up and get a total of £6,000.

What makes Help to Buy different in the UK?

Although Help to Buy is the same in all English cities, the equity loan in London can be used to cover up to 40% of the property’s market value.

However, there are key differences between Scotland, Wales, and Northern Ireland.

Help me Buy Scotland

Scotland’s Help To Buy government mortgage scheme differs from the English version. It comprises two initiatives, the Affordable New Build Scheme (or the Smaller Developers Scheme). The difference between these two initiatives is the size of the housebuilders.

Successful applicants will be eligible for an equity loan of up to 15%, which is interest-free. They will need a minimum 5% deposit. No property must be owned before the scheme begins. Participating housebuilders are only allowed to offer properties. Prices are not permitted above £200k.

Help to Buy Wales

The Welsh government’s equivalent to the Help to Buy Mortgage Scheme differs. The shared equity loan can be used to finance up to 20% of the property. Borrowers will need to deposit at least 5% and obtain a repayment mortgage from the lender to cover the remainder. The property value limit is £300,000.

Northern Ireland: Is there Help to Buy?

However, many other programs assist first-time buyers in Northern Ireland. These include buying a home at a discounted price from the Housing Executive or Co-Ownership, the Irish equivalent of Shared Ownership. (see the section below).

Further information can be found on the website to find government mortgage schemes in Ireland. For more information about Northern Ireland mortgages, look at our guide.


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Mortgages for Shared Ownership

Shared ownership is another program that offers government mortgage loans in England. However, Scotland, Wales and NI each have their versions. Customers unable to pay a mortgage may purchase a portion of a property from a landlord (usually a housing association or council) and then rent the remainder at a reduced rate. You will need to get a mortgage for the portion of the property you will be owning. This can cover between 25% and 35% of the value.

Borrowers can increase the ownership percentage over the term, but this typically means the property is revalued.

Who can apply for a mortgage in Shared Ownership?

The Shared Ownership program, like most government assistance mortgage programs, has specific eligibility requirements and terms and conditions…

  • This is available to households earning less than £80k or £90k in London.
  • Only for first-time buyers or those who have owned a home previously but cannot afford a mortgage.
  • You can get a mortgage in Shared Ownership with a 5% deposit or, in certain cases, without any deposit.
  • If you decide to sell, the landlord will first refuse to purchase the property back. This right will be held for 21 years, starting from the date that your 100% ownership began.
  • Military personnel have priority over all other applicants

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Right to buy/ Right to acquire

Right To Buy is another government-aided mortgage program. This program is for council tenants living in England, Wales, and Northern Ireland who want to purchase the home they rent. Often, it comes at a significant discount. The eligibility criteria are as follows…

  • The minimum rental period for tenants must be at least three years.
  • Three years can be consecutive.
  • Scots law does not allow for the Right to Buy. You can still purchase your council house, but the local authority has no obligation to offer a discount or sell it.
  • There are subtle differences in how the scheme operates in Northern Ireland and Wales.
  • You may be able to obtain a Right Buy mortgage with zero deposit. Some lenders will let you use your RTB discount as a deposit.
  • A similar scheme is Right To Acquire which allows tenants of housing associations to purchase their property at a discounted price, usually between £9k to £16k.

You can find more information on the Right to Buy scheme at the official site.

Starter Homes scheme

The Starter Home program is a government mortgage scheme that targets young first-time home buyers. It is designed for those who are looking to buy a new-build property. The program offered 200,000 new-build homes at a minimum 20% discount on the market price. To qualify for the loan, the maximum property value cannot exceed £250,000 in London or £450,000 in London. The borrower must be less than 40 years of age.

Visit the Starter Homes official website for more information.


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What other factors affect eligibility for a mortgage through government help programs?

To be eligible for a mortgage under one of the government-funded programs like Shared Ownership or Help to Buy, you must meet both the lender’s and the scheme’s eligibility requirements. These variables will influence factors such as the interest rate and size of the mortgage that you can take out.

  • Your income, employment and earnings: Although some government programs target low-income borrowers, some lenders will only give you a mortgage based on or x4.5 the salary. Some will offer x5, while others will offer HTML6. A specialist lender may be required if you apply for a self-employed mortgage or a commission-based mortgage.
  • Your credit rating A specialist lender may be required if you are looking for a mortgage with poor credit. The lender may base their decision on your credit score, age, and severity.
  • Your age, As a rule, lenders will not offer mortgages to people over 75. Some lenders will extend to 85, and a few lenders will lend to pensioners at any age as long as they feel they can afford the monthly payments.
  • The property type is A specialist lender may be needed if the property you are buying has nonstandard construction (e.g. A thatched roof or timber frame is recommended as lenders may consider these higher-risk.
  • Your deposit Although Help to Buy may help borrowers with low deposits to get on the property ladder, you still need a minimum 5% deposit to obtain a UK residential property (unless you are using the Rights to Buy discount and your deposit is serving as the deposit/Shared Ownership with a lender who does not require one), and if you have bad credit, a larger deposit may be required.

The government announced in the Autumn 2018 Budget that an equity loan scheme would replace the Help to Buy equity loan program once it ends in March 2021. This new initiative is only for first-time buyers. It will operate in the same manner as the existing equity loan system. However, homebuyers’ maximum property value will be subject to regional price caps.

  • North East £186.100
  • North West £224.400
  • Yorkshire & The Humber: £228,100
  • East Midlands £261,900
  • West Midlands £255.600
  • East of England £407.400
  • London: £600,000
  • South East £437.600
  • South West £349,000

The equity loan program will be discontinued after March 2023.

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Can I get government support if I can’t pay my mortgage?

Many customers ask us if the UK government has support programs for homeowners who have difficulty paying their mortgages. There might still be some help, but the UK government has discontinued the Mortgage Savings Scheme offered in England.

Mortgage rescue in Wales

The government of Wales still offers mortgage rescue. Housing associations and councils administer the scheme to stop owner-occupiers from becoming homeless. Referring to a local housing organization is usually done for eligible people. After assessing your financial and property situation, the association can either buy your entire home or rent it to you.

Homeowners in Scotland can get government mortgage assistance

Through its Home Owners Support Fund, the Scottish government offers programs to assist homeowners with difficulty paying their mortgage payments.

  • The Mortgage Rent Scheme involves a social landlord purchasing your home and renting it to you.
  • The Mortgage to Shared Equity Scheme To reduce your monthly debt, the Scottish government purchases a 30% stake in your home.

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Help from the government to reduce mortgage interest

You can get assistance with interest payments through a government-sponsored mortgage program. Homeowners who are disabled, pension-eligible or are on income support can receive assistance for mortgage interest (SMI). However, SMI has changed its status from a benefit to a loan that can be repaid.

  • You don’t have to make regular payments, although the loan will be secured to your home. You will have to pay off the mortgage using the remaining equity after selling your house or transferring ownership. The remaining debt will be written off if there isn’t enough equity.

You will not be subject to credit checks or setup fees, but interest will be charged on the SMI loan until it is fully paid.

Can I get government assistance with my mortgage if I am on Universal Credit?

This might be possible if you don’t have any ‘earned income’ or receive benefits from your employer, such as Statutory Maternity and Statutory Sick Pay.

You may be eligible to receive some mortgage interest from the government. This will be based on a fixed rate applied to the outstanding amount on your mortgage (up to £200,000). Once you return to work, the payments will stop.


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How to get mortgage assistance from the UK government

You may be curious about how to apply for one of the mentioned schemes or looking for more information. You can find additional information and online applications on the official websites of these schemes, which we have linked in the appropriate sections.

It’s also a smart idea to get independent advice before proceeding. The brokers we work with can inform you of all the details before starting your mortgage application. They will guide you through the process and let you know about other options. They will help you find the right lender if you decide to go ahead.

Talk to an expert on government mortgages.

If you are having difficulty getting a mortgage or paying your monthly payments, government schemes may be able to help.

However, it is worth seeking our expert advice.

Contact us or send us an enquiry to be connected with an expert broker. They will guide you through the process and offer advice about government schemes.

This could help you save time and money when you apply for your mortgage. They are not required to do so, and there will be no marks on your credit reports.


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