The government has backed a 95% mortgage initiative to help buyers secure a mortgage with a 5% deposit. The scheme is available to all home buyers, not just first-time buyers, and applies to properties up to the value of £600,000.
Chancellor of the Exchequer, Rishi Sunak, commented: “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.”
Should you take advantage of the scheme?
With just a 5% deposit required, there’s less upfront cost. However, there won’t be an extensive range of mortgage products to choose from in this bracket.
Plus, the most competitive interest rates will only be available to those with larger deposits, of around 40%, for example. So, the bigger your deposit, the wider your choice of mortgage products, and the better the interest rate.
But if you opt to wait until you have a larger deposit, you could find that house prices have gone up in that time – and you need even more of an outlay. Snapping up a property sooner could be a safer bet.
Which lenders are taking part in the scheme?
The scheme launched in April 2021, with Lloyds, Santander, Barclays, HSBC, and NatWest taking part and Virgin Money to follow.
Banks and buildings societies are being incentivised to offer 95% mortgages by the government who are agreeing to cover the risk. Therefore, in the event of the borrower failing to pay their monthly mortgage repayment or the property falling into negative equity, the government will guarantee the loan.
How do you apply?
The application process works in the usual way. The lender will still take into account your income, outgoings, and credit score when they assess affordability.
How much they’re prepared to lend will be dependent on this and, even if you do have the 5% deposit, you may find the maximum loan-to-value (LTV) mortgage they’re prepared to offer is a lot less than 95%.
Use a mortgage comparison tool
A helpful starting point is to run your figures through a mortgage comparison tool found on sites like moneysupermarket.com.
This way, you can get a reality check on what you’re likely to be offered. It will show you the 95% mortgage products from different providers, and you can use it to calculate your monthly mortgage payment.
Simply enter how much you need to borrow, the length of time you want the loan to run, and the value of the property you’re thinking of buying. The tool will give you the LTV percentage.
It’s a useful way to get some preliminary mortgage quotes and find out the maximum LVT you’re likely to get from each lender. However, the tool doesn’t take into account your credit history, so you’ll need to follow up with a direct approach to the lender or a mortgage broker to get confirmation of figures.
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