After a challenging year for first time buyers, and those with little deposit to put down, the launch this week of the government-backed 95% mortgage is welcomed by many.
The scheme, announced in last month’s budget statement, involves the government ‘guaranteeing’ 95% mortgages for buyers with 5% deposits.
The initiative is intended to try to put homeownership within reach of prospective buyers who have limited savings or equity and who have found their prospects of getting onto the housing ladder hindered by year-on-year growth in house prices
Under the terms of the scheme, the Government guarantees the portion of the mortgage over 80% (so, with a 95% mortgage, the remaining 15%).
In practice it just means the government will partially compensate the lender if a homeowner defaults on their mortgage. The Government’s aim is to mitigate lender risk for mortgage providers when assessing higher loan-to-value (LTV) applications.
This suddenly opens doors to first time buyers or those with small savings or amounts of capital equity, the opportunity to get onto the ladder without a parental step up.
Rishi Sunak has said it’s about the Government’s commitment to supporting house buyers, but also the economy of the whole housing sector. With an appreciation that when the sector is hit, it affects a vast number of professions involved in housing, from estate agents to decorators, to developers and the DIY industry.
He said: “Saving for a big enough deposit can be hard, especially for first time buyers … by giving lenders the option of a government guarantee on 95% mortgages, many more products will become available, boosting the sector, creating new jobs, and helping people achieve their dream of owning their own home.”
This mortgage guarantee scheme will support a new generation in realising their dreams of home ownership, its core design being to encourage lenders to reintroduce the 95% loans which the Treasury says ‘virtually disappeared’ during the pandemic. This will enable more households to access mortgages, without the need for prohibitively large deposits.
The number of 95% mortgages available to first-time buyers fell dramatically over the last year, due to the instability of the pandemic; lenders needed to shield themselves from riskier loans. So, this scheme is going to revive that whole movement, and nearly all of the high street lenders are onboard.
Barclays, HSBC, Lloyds Bank, NatWest, and Santander are the first five lenders to commit to launching 95% deals.
Will I be eligible for the 95% mortgage scheme?
Most first time buyers are likely to be able to take advantage of the scheme, but there are a few rules around eligibility:
You’ll need to be buying a property that will be your main home – second homes and buy-to-let properties are not included in the scheme
The scheme is available for house purchases under £600,000
The 95% mortgage guarantee is open for new applications submitted between April 2021 and December 2022. It’s seen as a temporary plan in response to the pandemic and not a long-term part of the Government’s housing strategy
The guarantee will be valid for up to 7 years after the mortgage is originated
The same affordability checks will be in place, so this does not increase the banks’ risk around lending criteria, but it does give them more confidence to lend higher amounts.
To help with money management there will be an offer from all participating lenders of a five-year fixed-rate mortgage. This is written within the terms of the scheme and it is compulsory that they have one as part of their range. Supporting borrowers with the security of predictable repayments for a longer period.
This scheme is adding to the current range available including Help to Buy, Shared Ownership and the First Homes Scheme. There’s a lot to consider and getting a broker involved can ensure you make the right choice for you and your personal circumstances.
What are the benefits of applying for a 95% mortgage through a professional mortgage adviser?
Working with a broker can improve your chances of your mortgage application being accepted, because the broker should be able to spot potential problems whilst going through your financials with you.
A good broker will also handle the progress of your form with your lender, taking much of the stress out of the process.
But more than that, a good adviser will also be able to help you to make the right choices around how much you borrow and how you repay it, taking into account your current financial situation and your plans for the future.
In the end, a mortgage broker is there to give you professional and expert advice that protects your best interests.
A broker will charge you a fee for arranging your mortgage (ours are set out at the end of this article), but if you work with the right adviser the additional cost should give you peace of mind and the benefit of a wealth of experience.
With all of the support schemes now on the table, it seems like, finally, a lot of first-time buyers will be able to step out of the bank of Mum and Dad into a position of freedom and independence.
Oportfolio Limited is an appointed representative of Primis Mortgage Network, a trading name of First Complete Limited which is authorised and regulated by the Financial Conduct Authority
Your property may be repossessed if you do not keep up repayments on your mortgage.
Oportfolio Ltd fees are payable on application. We charge a broker fee for property purchases of £495 and a remortgage/further advance fee of £395. Our product transfer fee is £295.