Low-deposit mortgage scheme gets under way
HOME buyers with deposits as low as five per cent will find more deals available from this week, as a new UK Governmentbacked mortgage scheme gets under way.
Several of Britain’s biggest mortgage lenders are turning on the taps to boost the supply of low deposit home loans, under an initiative unveiled in the Budget.
Lloyds, Santander, Barclays, HSBC UK and NatWest will be among the first to launch mortgages under the scheme, with Virgin Money following next month.
The number of low deposit mortgages on the market shrank dramatically in the early days of the coronavirus pandemic, as lenders became much more cautious about offering “riskier” loans in the tough economy.
The new scheme, which started on Monday, will tackle this by helping first-time buyers or current home owners secure a mortgage with just a 5 per cent deposit to buy a house for up to £600,000.
It will work by offering lenders the guarantee they need to provide mortgages that cover the other 95 per cent, subject to the usual affordability checks.
The UK Government said that when asked, 69 per cent of private renters who had looked into a mortgage said they could not find many deals with a low deposit.
Housing Secretary Robert Jenrick said: “For too many people, no matter how hard they work, home ownership
can seem out of reach. One of the biggest divides in our country has been between those who can afford their own home and those who cannot.
“That’s why we are determined to do everything we can to help hardworking families and prospective first-time buyers get their feet on the housing ladder in an easy and affordable way, to level up this country.
“The new mortgage guarantee scheme which comes into effect (Monday) will give providers the confidence to lend and help families
and young people get on the property ladder without the prohibitive burden of a large deposit.”
He added: “Together we can turn Generation Rent into Generation Buy.”
In general, the scheme, which will be open for applications until December 31 2022, can be used for new or existing properties.
Lenders will be able to purchase a Government guarantee that would compensate them for a portion of their losses in the event of a repossession.
The guarantee will be valid for up to seven years after the mortgage is originated.
The new scheme will mirror a “tried and tested” initiative which reinvigorated the mortgage market in the recent past.
In 2013, the Government launched the Help to Buy mortgage guarantee scheme in response to a similar shortage of low-deposit mortgages following the 2008 financial crisis.
That initiative helped more than 100,000 households to buy their own home across the UK.
The previous Help to Buy scheme also had the effect of boosting competition in the five per cent deposit bracket among lenders who were not part of the scheme.
They ramped up their low-deposit ranges in order to compete with lenders taking part in the initiative.
Chancellor Rishi Sunak said: “Every new home owner and mover supports jobs right across the housing sector, but 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 per cent mortgages, many more products will become available, boosting the sector, creating new jobs and helping people achieve their dream of owning their own home.”
The new scheme has been launched at a time when house sellers are demanding record sums for properties.
Rightmove said on Monday that average seller asking prices hit a new record high of £327,797 in April.