Mortgage guarantee scheme offering 95% loans confirmed in government plans
The new scheme will be permanently launched from this month and means first-time buyers can borrow up to 95% of the home price.
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It replaces the previous Mortgage Guarantee scheme which first launched in 2021 and ended last month.
Plans to relaunch the scheme were initially laid out in the Chancellor's Spending Review earlier this month.
The move, reiterated in government documents published today, allows buyers to purchase a home across the UK with just a 5% deposit.
The government then provides a guarantee to the lender to cover some losses if the buyer cannot repay their mortgage and the property gets repossessed.
It is significantly lower than the 10% or 20% deposit many lenders ask buyers to pay when securing a home.
For example, if you bought a house for £350,000, you would only need to pay a deposit of £17,500.
Someone required to pay a 20% deposit on a property of the same value would have to make a down payment of £70,000.
Since the scheme began, over 53,000 mortgages have been completed using it, with a total value of £10.7billion as of December last year.
The small deposit mortgage deals were previously popular leading up to the 2008 financial crash but were phased out afterwards.
The scheme has been hailed as an accessible way for buyers to get on the ladder.
But the larger loan-to-value ratio for the mortgage means buyers will pay higher interest rates when they make repayments.
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Peter Stimson, director of mortgages at lender MPowered Mortgages, said the move comes "a year too late".
He said: "The mortgage market has changed a lot since Rachel Reeves swept into 11 Downing Street last July.
'The Base Rate has come down by a full percentage point and hundreds of 95% LTV mortgage products are now available.
'Every lender who wanted to offer a 95% loan is probably already doing so.
"The Chancellor's announcement is unlikely to make dozens more suddenly follow suit - as the price of entry is unknown and will vary each year."
Many lenders are offering their own take on the 95% mortgage.
Nationwide just recently launched a 95% mortgage for buyers looking to purchase a new build home.
The offer also allows customers to borrow six times their annual income through its Helping Hand scheme.
Elsewhere, Skipton Building Society offers a 100% mortgage deal that allows you to buy a home without a deposit.
A similar mortgage deal was recently launched by April Mortgages too.
ALL CHANGE
Mortgages will also be available at over 4.5 times a buyer's income, following recommendations from the Bank of England to loosen lending rules.
This will create more than 36,000 additional mortgages for first-time buyers over the first year, the Government said.
Britain's biggest building society Nationwide also announced plans last week to make its "Helping Hand" mortgage scheme for first-time buyers available to people on lower incomes.
From Wednesday, eligible first-time buyers can apply for Nationwide's Helping Hand mortgage with a £30,000 salary, down from £35,000, and joint applicants with a £50,000 combined salary – down from £55,000.
It has been estimated that this will support an additional 10,000 first-time buyers each year.
Brian Byrnes, head of Personal Finance at Moneybox, said: "It is encouraging to see steps being taken to support first-time buyers.
"Enabling people to borrow more is not a silver bullet.
"What first-time buyers truly need is not just the ability to take on more debt, but meaningful, long-term support to help them start saving and investing earlier in life so they can build up that all-important deposit."
Elsewhere, plans to cut the tax-free allowance for cash ISAs have been put on hold by the Chancellor, after speculation that reforms to the savings account would also be announced.
What help is out there for first-time buyers?
GETTING on the property ladder can feel like a daunting task but there are schemes out there to help first-time buyers have their own home.
Help to Buy Isa - It's a tax-free savings account where for every £200 you save, the Government will add an extra £50. But there's a maximum limit of £3,000 which is paid to your solicitor when you move. These accounts have now closed to new applicants but those who already hold one have until November 2029 to use it.
Help to Buy equity loan - The Government will lend you up to 20% of the home's value - or 40% in London - after you've put down a 5% deposit. The loan is on top of a normal mortgage but it can only be used to buy a new build property.
Lifetime Isa - This is another Government scheme that gives anyone aged 18 to 39 the chance to save tax-free and get a bonus of up to £32,000 towards their first home. You can save up to £4,000 a year and the Government will add 25% on top.
Shared ownership - Co-owning with a housing association means you can buy a part of the property and pay rent on the remaining amount. You can buy anything from 25% to 75% of the property but you're restricted to specific ones.
Mortgage guarantee scheme - The scheme opens to new 95% mortgages from April 19 2021. Applicants can buy their first home with a 5% deposit, it's eligible for homes up to £600,000.
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