What is the new mortgage guarantee scheme?
The mortgage guarantee scheme, announced in last week’s Budget, is designed to incentivise lenders to reintroduce 95pc mortgage deals from April 2021. These types of mortgages aren’t new and have been available previously but the number of 95pc mortgage products has largely decreased during the pandemic.
First things first, what is a
95pc mortgage? A 95pc Loan to Value (LTV) mortgage is a type of mortgage that allows you to borrow 95pc of the property price from a lender. The remaining 5pc is covered through your deposit.
So, if you’re a first-time buyer who has been struggling to save enough for a deposit or you own a home but you haven’t built up much equity in yet, this new scheme could be beneficial.
The scheme is expected to launch around mid-April but we await further details. You can purchase properties up to £600,000 with a 5pc deposit and the scheme open to all homebuyer, not just first-timers. Normal mortgage affordability checks will still be in place.
Although we do not yet know any product specific details, the government has confirmed many of the main high street lenders will be offering 95pc mortgages, including Lloyds, NatWest, Santander, Barclays and HSBC, with Virgin Money and others expected to follow
The new mortgage guarantee scheme will see the UK Government act as a safety net for lenders. In the worst case scenario, where a property is repossessed and sold at a loss, the Government will take on some of the losses incurred by the lender. In return, lenders will have greater incentive to offer 95pc mortgage products to people looking to buy a new home, as they will carry less risk.
Of course, any initiative which allows a route into home ownership is positive for the Yorkshire property market. Clearly if more people are encouraged to move or get onto the property ladder then this can only be healthy for the market and wider local economy.
However, we should be wary that the devil is in the detail with the mortgage guarantee scheme. The mortgage sector as a whole is still awaiting further information specifically about how it will run and what rates will be available to customers.
We know from similar government schemes in the past that it is unlikely to be taxpayer funded and the lenders will have to pay into the scheme to access it.
Whether you can get a 95pc mortgage or not depends on your individual circumstances and affordability, which can be assessed by an expert mortgage adviser.
However, as you may now only require a 5pc deposit for a 95pc LTV mortgage, many prospective homebuyers could find they have enough to buy their first property.
For example, let’s say you were previously aiming to buy a home for £200,000 using a 90pc LTV mortgage. Your deposit would have been £20,000 as you’re making up 10pc of the property price. With a 95pc LTV mortgage, your deposit could now be as low as £10,000.
Having said this, we are erring on the side of caution at present as we do need to understand further what rates and deals will be offered.
Do not forget that there are plenty of other great schemes now available to first-time buyers, such as the Help to Buy Equity Loan or Shared Ownership and also through various lenders, guarantor mortgages or family springboard mortgages.