Mortgage Guarantee Scheme 2025 – Everything you need to know

A few months ago, the government programme called the Mortgage Guarantee Scheme 2025 came into force as a permanent scheme. Does this information significantly affect the mortgage market by offering alternative home buying options, as other assistance programmes do? In this article, you will learn exactly what the Mortgage Guarantee Scheme is and how you can benefit from it.

What is the Mortgage Guarantee Scheme?

The Mortgage Guarantee Scheme is not a programme that buyers use directly. Everything happens ‘behind the scenes’ of mortgages, as the programme operates on the basis of an agreement between UK lenders and the government. Under this scheme, the government provides lenders with partial guarantees on mortgages that have an LTV of over 90%.

This guarantee means that if the borrower is unable to repay the mortgage or the agreement is terminated for another reason and the bank decides to repossess the property, the government will pay the lender part of the loss attributable to the ‘loan layer above a given LTV’. This amount is not clearly defined and depends heavily on the LTV ratio of the mortgage, the amount of the loss and the terms of the agreement between the government and the specific financial institution. For you, as a buyer, this is not particularly important; what matters more are the results of these agreements.

The Mortgage Guarantee Scheme therefore reduces the risk borne by the bank when granting a mortgage with a high LTV ratio. This, in turn, makes it more willing to grant such mortgages to people who do not have large funds to contribute as a deposit. So if you are unable to accumulate a 10% or 15% deposit, you may potentially have a better chance of obtaining a mortgage with a low LTV on slightly more favourable terms.

The programme has been named the Mortgage Guarantee Scheme 2025 and came into effect in July this year. This fact may be misleading, as the original version of the programme had been in place since 2021 and ended on 30 June 2025. So what has changed? — Practically nothing. The programme’s objectives are exactly the same, and only the status of the programme has changed, which until June 2025 was described as ‘temporary’ and is now ‘permanent’.

Who is eligible for the programme?

There are several simple conditions that must be met in order to benefit from the programme. We describe them below:

• You are applying for a repayment mortgage (a repayment mortgage is a mortgage in which the instalments consist of principal and interest) – Buy to Let mortgages or other interest-only products are not covered by the programme;

• You are purchasing a property to use as your main residence – it cannot be your second home or holiday property;

• You are making a deposit of between 5% and 9% of the property value – this translates to 91% to 95% LTV, which is the range covered by the Mortgage Guarantee Scheme;

• The value of the property does not exceed £600,000.

Applying for a mortgage product participating in the scheme does not exempt you from a credit assessment. The entire property purchase process is exactly the same as for regular mortgages, which means that the credit assessment process remains unchanged. The only difference is the reduced risk for the bank, which makes the result of such an assessment slightly higher than it would be without the Mortgage Guarantee Scheme.

Why is the LTV ratio so important?

To better understand how the Mortgage Guarantee Scheme works, it is worth first familiarising yourself with the meaning of the LTV ratio for the bank. The Loan-to-Value Ratio when purchasing a new property is defined by the amount of your own contribution (later, e.g. when remortgaging, the amount of capital repaid has a significant impact on it).

For example, if you are purchasing a property for £250,000 and you are making a £50,000 deposit (20% of the property value), the LTV ratio of the mortgage is 80%.

The LTV ratio is a very important part of assessing your creditworthiness and has a direct impact on the risk the bank takes when granting you a mortgage. This is because by making a deposit, you ensure that the loan does not cover the entire value of the property, but only a part of it. When a bank decides to take over a property, it is forced to sell it quickly (usually at auction), which often results in a sale price lower than the actual value of the property:

Let us consider two cases — a mortgage with 80% LTV and a mortgage with 95% LTV for a house worth £200,000.

In the first case, the bank sells the house at auction for £170,000 — thanks to the fact that the borrower made a £40,000 down payment, the bank does not incur a loss, and any surplus is returned to the customer.

In the second case, the situation is slightly different. Selling the house for £170,000 means that the bank still needs £20,000 to cover the loss. Although this amount is charged to the borrower, there is a good chance that they will not be able to repay their debt, and the dispute will continue in court for years to come.

Here, a simple rule applies: the lower the LTV ratio, the more willing the bank is to grant a mortgage (this is reflected, among other things, in the interest rates on various mortgage products, e.g. on the HSBC website). Thanks to the Mortgage Guarantee Scheme, banks are more willing to grant mortgages considered risky, as the government guarantees to cover part of any potential losses. This is beneficial for both parties, as it should be remembered that most mortgages (even those with higher risk) are repaid, which generates profit for banks. On the other side, we have UK residents who are eager to enter the housing market but often do not have large savings for a down payment. The Mortgage Guarantee Scheme partially solves this problem, as can be seen in the official statistics — since the programme’s inception in 2021, almost 56,000 mortgages have been covered by the scheme as of June 2025.

Is it worth relying on the Mortgage Guarantee Scheme?

Although the Mortgage Guarantee Scheme does indeed affect borrowers with low down payments and enables them to take out a mortgage, it is not an ideal solution. You must remember that a government guarantee will not make your mortgage terms favourable — keep in mind that such a mortgage still has an LTV ratio of around 90%, which is very high and reduces your chances of obtaining an attractive interest rate or flexible mortgage terms. So if you can afford to make a larger deposit, you will most likely get a better mortgage with an LTV of 85% or 80% than one with an LTV of 92% covered by the Mortgage Guarantee Scheme.

However, this does not mean that using the MGS programme is a bad idea. If you are unable to save up a larger deposit, this programme can help you buy a home. Remember that unfavourable mortgage terms do not have to apply to you all the time — after a few years of repaying the principal, you can remortgage, in which case the LTV will be much lower (due to the lower mortgage amount), which in turn will allow you to choose a more attractive mortgage offer.

Secondly, you should not necessarily be guided by whether or not an offer is covered by the scheme. It may happen that a lender who does not participate in the scheme will also offer products with 95% LTV, and sometimes they will even have better terms than others. When looking for the right mortgage offer for you, consider all possible options, not just those covered by the Mortgage Guarantee Scheme.

Summary

The Mortgage Guarantee Scheme is a government programme that covers part of the bank’s losses when it takes over a property. This makes banks more willing to grant mortgages with a high LTV ratio of between 91% and 95%. There are several conditions that must be met in order to benefit from the programme, but they are not very restrictive. In practice, the programme reaches those who actually need it, and its effectiveness is evident in the numbers (56,000 mortgages granted). If you do not have large savings for a down payment, the Mortgage Guarantee Scheme can be an important factor in enabling you to purchase a property.

Do I need to be a First-Time Buyer (FTB) to take advantage of the Mortgage Guarantee Scheme?

There are no requirements that the programme only applies to first-time buyers. If this is your second home, you can still purchase it with a mortgage covered by the programme.

Do I need to apply specifically to participate in the programme?

No, in the case of the Mortgage Guarantee Scheme, the programme is automatically assigned to mortgage offers. As a buyer, you do not need to take any specific action to participate in it.

Can the Mortgage Guarantee Scheme be combined with other support programmes?

It depends — in the case of Shared Ownership, this will not be possible. The situation is slightly different for the First Homes Scheme, as there are no regulations that would exclude this. If you would like to take advantage of both schemes at the same time, it is essential to contact a mortgage adviser and lender to ensure that this is possible in your case.