The onset of the pandemic in the Spring of 2020 quickly lead to the withdrawal of low-deposit mortgages, as property valuations ground to a halt and lenders looked for ways to manage business levels. Over the last 12 months the market has gradually opened up again, and the Budget announcement in March saw the Government confirm its intention to support the housing sector by increasing the availability of 95% mortgages. Here we explain how the new mortgage guarantee scheme works.
What is the mortgage guarantee scheme?
The Government scheme, launched on the 19th April, aims to help increase the number of mortgage deals available to buyers with as little as 5% to put down. The Government will provide lenders with a guarantee on the mortgages offered, which means that it will cover some of the lender’s losses if the borrower defaults on the mortgage within the first 7 years of buying their home. This should encourage lenders to develop mortgages for borrowers with small deposits, improving the range of options on the market. The Government’s view is that the lack of low-deposit mortgages is largely a response to the pandemic rather than a longer term issue within the mortgage market, and the scheme is therefore intended as a temporary measure. It will be open for new applications until December 2022.
Am I eligible for a 95% mortgage?
For mortgages covered by the guarantee scheme, the Government has applied some criteria limits that lenders must adhere to:- The scheme is available to first time buyers and home movers buying a main residential property up to the value of £600,000. It isn’t available for Buy to Let or second homes.- The mortgage must be taken on a repayment basis Every lender will carry out an affordability assessment as normal, taking into account your income and outgoings to determine how much you can borrow. Affordability calculations can vary from lender to lender, but the scheme has set a maximum borrowing level of 4.5 times your household income.
Can I use the scheme to buy any property?
Every lender has its own set of criteria, so specific restrictions can vary. Currently many lenders will already have limits that apply to new build houses and flats and so are not allowing 95% mortgages under the guarantee scheme to be used to buy new-build properties.
Are all 95% deals part of the scheme?
No. While several lenders have chosen to take part in the mortgage guarantee scheme, many have already launched 95% LTV mortgage deals outside of this initiative. Whether a lender takes part in the scheme or not will have little bearing on you as a borrower. There are also a number of other Government initiatives available for first time buyers, including the Help to Buy Equity Loan. You can read more about these schemes here.
Should I buy now or keep saving?
The bigger the deposit you can save, the wider the range of mortgage options you’ll be able to choose from. Lenders typically offer their most competitive rates to those with a larger deposit, so the more you can afford to put down, the lower your rate should be, and the less interest you’ll pay overall. It will also depend on the amount you can borrow and whether that in conjunction with the deposit will be enough to meet the required purchase price .
