A new government-backed mortgage scheme to help people with 5% deposits get on to the housing ladder is available to lenders from today.
First announced at the Budget, the scheme will help first time buyers or current homeowners secure a mortgage with just a 5% deposit to buy a house of up to £600,000 – providing an affordable route to home ownership for aspiring home-owners. The government will offer lenders the guarantee they need to provide mortgages that cover the other 95%, subject to the usual affordability checks.
The scheme is now available from lenders on high streets across the country, with Lloyds, Santander, Barclays, HSBC and NatWest launching mortgages under the scheme today and Virgin Money following next month.
The government will provide lenders with the option to purchase a guarantee on the top-slice of the mortgage. In other words, the government will compensate the mortgage lender for a portion of the net losses suffered in the event of repossession. The guarantee will apply down to 80% of the purchase value of the guaranteed property. The guarantee will be valid for up to 7 years after the mortgage is originated, evidence shows that loans are unlikely to default after such a period has elapsed.
The government has made clear its commitment to tackling inequality in the housing market and levelling up the country. Official statistics show more homes were delivered in 2020 than in any year since 1987.
Since 2010, more than 687,000 households have been helped into home ownership through government schemes. In 2019 a pledge to build 300,000 new and attractive homes a year was announced with an investment of over £12 billion in affordable housing over the next 5 years – the largest investment in a decade. Since 2010, more than 687,000 households have been helped into home ownership through government schemes, including Help to Buy and Right to Buy.The intervention comes as new figures published by the government show a greatly increased desire for home ownership and a sharp reduction in 95% mortgage availability over the past year. The COVID-19 pandemic has led to a reduction in the availability of high loan-to-value (LTV) mortgage products, particularly for prospective homebuyers with only a 5% deposit. This has left many hard-working households unable to get on to the housing ladder.
The figures show that more than two-thirds of private renters (68%) and those living at home (72%) want to buy, with the majority saying the pandemic has made them more aware of the importance and benefits of home ownership. The survey also found that 76% of private renters and 70% of those living at home have started saving for a deposit or put more money into their savings during the pandemic.
When asked, 69% of private renters and 63% of those living at home who had looked into a mortgage said they cannot find many mortgages with a low deposit. Today’s new 95% mortgage scheme will now make it even more accessible to own a home. The new mortgage guarantee scheme 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.
In recent years the UK has reversed the trend and seen a positive increase in owner-occupiers. Still, for too many people, no matter how hard they work, home ownership can seem out of reach, Housing Secretary Rt Hon Robert Jenrick MP said. “One of the biggest divides in our country has been between those who can afford their own home and those who cannot,” he added.
Despite the challenges faced over the past year, the government has intervened to protect jobs, support builders and buyers to help keep the housing market healthy. Today’s 95% mortgages launch further strengthens their commitment to build back better from the pandemic. “Together we can turn ‘Generation Rent’ into ‘Generation Buy’,” the Housing Secretary said.
Part of the government’s Plan for Jobs, the new scheme will help to support the housing market and protect jobs and businesses across the housing supply chain, from housebuilders and estate agents, to tradespeople, DIY stores and removal firms. The delivery of more homes was also an integral part of the government’s most ambitious overhaul of the planning system in decades. The reforms will streamline processes, cut red tape and harness technology to deliver homes faster.
Coupled with the decision to extend the Stamp Duty holiday further, the Mortgage Guarantee Scheme will provide additional options for more people to become homeowners.
The scheme is one of a range of flexible home ownership options available. These include Help to Buy, Shared Ownership and the First Homes Scheme. Figures show that the number of mortgage approvals for house purchases in January 2021 was 99,000 – a 40% increase on January 2020.
The scheme is intended as a temporary measure. It will be open for new mortgage applications from April 2021 to December 2022, in line with the government’s view that the current scarcity of high loan-to-value lending is primarily a response to the pandemic rather than a symptom of a longer-term structural change in the mortgage market.
The government will review the continuing need for the scheme towards the planned end date, and determine whether extending the period of eligibility for new mortgages would continue to deliver benefits for prospective home owners.
See more information on the mortgage guarantee scheme.
Other government home ownership options available include
95% Mortgages: From today (19 April) first time buyers will be able to purchase a home with only a 5% deposit. The scheme will help to increase the supply of 5% deposit mortgages for credit-worthy households by supporting lenders to offer these products through a government-backed guarantee.
Help to Buy: A government equity loan that supports first time buyers with a low interest loan towards their deposit.
Shared Ownership: Gives first time buyers the option to buy a share of their home (between 25% and 75%) and pay rent on the remaining share.
First Homes: A new scheme designed to help local first-time buyers and keyworkers onto the property ladder, by offering homes at a discount of 30% compared to the market price.
More information on government home ownership schemes is available here.
You can use a Mortgage Affordability Calculator by the Money Advice Service to estimate how much you can afford to borrow to buy a home, taking into account your income and monthly outgoings.
Image: Upton, Northampton, Northamptonshire, UK, in March 2021 © REET
