Not to be confused with the Help to Buy Equity Loan Scheme, the Guarantee Scheme was introduced as a flagship programme in 2013 to help first-time buyers get onto the property ladder. Under the scheme, buyers were able to purchase their new home with just 5% deposit, as the government made a promise to the lending bank to cover any payments missed by the buyers.
The scheme met with both praise and criticism throughout its time in force but reportedly helped more than 100,000 people buy homes. It was also a relatively inexpensive scheme for the government with, incredibly, only two buyers defaulting on their agreement and costing a total of £17,411 over the three years it has been in place. This near non-existent amount of non-payment is attributed to low interest rates and consequently more affordable mortgage levels; however, as rates begin to rise the default rate is likely to increase too. As the scheme guarantees payments for seven years from the date the mortgage is taken out, the government could be paying banks up until 2023. They have prepared for this and £12 million has been set aside for such events, but here’s hoping they don’t have to use the whole lot!
As banks now offer 95% mortgages even without the government guarantee, the scheme was deemed to have become obsolete. However, the Help to Buy Equity Loan Scheme, in which buyers put down a 5% deposit and the government contributes a further 25%, is still available using the same terms and will be until 2020.