Help for first-time buyers as Treasury backs 5pc deposit mortgages

PLANS to turn Generation Rent into Generation Buy could help two million first-time buyers to get on the property ladder.

From next month, first-time buyers will be able to get government-backed mortgages with 5 per cent deposits.

The Chancellor said the mortgage guarantee scheme will be available for homes worth up to £600,000.

Buyers will have the opportunity to fix their initial mortgage rate for at least five years.

The scheme will be available for new mortgages until Dec 31 2022. Major lenders including Lloyds, Natwest and HSBC are confirmed as providers.

The move will be a lifeline for firsttime buyers after lenders withdrew low-deposit mortgages when the pandemic began.

In March 2020, there were 391 mortgages requiring a 5 per cent deposit on the market, according to Moneyfacts, a data company. By May, the number available had plunged to 41, while at the beginning of this month, there were only five – and these were highly specialised products. The scheme is similar to the Help to Buy Mortgage Guarantee Scheme that ran between 2013 and 2016.

Although it will reduce the problem of getting a deposit together, buyers will still only be able to borrow in proportion to their income, typically a multiple of 4.5.

Richard Donnell, of property website

Zoopla, said that the scheme would particularly benefit buyers in lower-value housing markets such as northern England and Scotland. “The scheme will have less impact for buyers in southern England where high house prices are a major barrier to being able to afford a 95 per cent mortgage,” he said.

Lawrence Bowles, of Savills estate agents, said a further key factor in affordability will be the interest rates charged on these mortgages.

Mr Bowles said: “Borrowing at high loan-to-value ratios is expensive. The average quoted mortgage rate for a 95 per cent mortgage was 4.07 per cent in January 2021, according to the Bank of England. Mortgages at 75 per cent loanto-value cost less than half that, at 1.75 per cent.”