The policy, which was announced in the Budget, is designed to help first-time buyers get onto the property ladder with only a 5% deposit.
The launch has coincided with record rises in UK housing prices which have been climbing steadily for months, pushing the size of the deposit required out of reach of many.
Similar schemes have been used in the past to boost the economy and the housing market as well offering support to those buying a home for the first time.
The scheme will be made available to anyone wanting to buy a property up to the value of £600,00 that is not a buy-to-let or second home.
The guarantee sees the government is partial and generally offers 15% to compensate lenders if the borrower defaults on their loan.
The scheme is intended to instil confidence in the High Street to offer 95% loan to value mortgages, many of which were withdrawn during the Covid-19 crisis.
So far, Lloyds, Santander, Barclays, HSBC, and NatWest are starting to offer products this week and Virgin Money will do so next month. Some lenders, such as Halifax and Barclays have stated that they will not make these deals available for new-build properties.
The Chancellor, Rishi Sunak, said: “Every new homeowner 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% mortgages, many more products will become available, boosting the sector, creating new jobs and helping people achieve their dream of owning their own home.”
Lenders will still be subject to the usual affordability criteria checks and people who lost their job, or whose income has been sporadic due to the pandemic, may find it difficult to secure a mortgage.
As mentioned, house prices have been rising, partly due to pent up demand caused by the pandemic and partly due to government stimulus such as the stamp duty holiday. The concern is, if prices start to fall, there is a real potential for some people to fall into negative equity.
The rates for some of these deals with a 5% deposit on two-year fixed-rate deal start at around 3.9% which NatWest have said reflects the additional risk taken on by the banks but insists that it remains a competitive rate. Analysts have said that rates cut be cut significantly, by as much as 0.75% of a percentage point for those who are able to stretch to a 10% deposit. With more lenders poised to launch deals for this sector of the market, hopefully, borrowers’ level of choice should increase and increased competition within the higher loan-to-value sector will translate in more competitive rates for these borrowers.
95% mortgages for first-time buyers are an appealing prospect for those trying to get onto the property ladder. If this scheme enables you to purchase your first home, it is important that you have a survey done. Researched has shown that properties that have not had a survey will face an average of £5,750 in repair bills due to hidden defects. Here at Avery & Co we have a dedicated team of RICS Chartered Surveyors with many years’ experience and local knowledge who adhere to the RICS framework for professional industry standards.
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