Return of the 95% Mortgage

In the March 2021 Budget, the Chancellor announced the re-introduction of a Mortgage Guarantee Scheme to help buyers who only have a small deposit.

This initiative should deliver reassurance to lenders, as the Government will compensate the mortgage lender for a portion of any net losses suffered in the event of repossession. The guarantee will apply down to 80% of the purchase value of the property (with the lender taking a small share of this overall risk, above the 80% level).

The benefit of this governmental support is that it’ll give confidence to lenders to offer mortgage deals to those with a small deposit. This enables the return of 95% Loan-to-Value mortgages, which virtually disappeared in the early stages of the pandemic, and will help to move more from Generation Rent to Generation Buy.

Additionally, this UK-wide scheme (with a £600,000 property price limit) is not just restricted to First-Time Buyers or new-build homes, markedly increasing the number of people for whom the scheme may be of interest. Particularly, when you consider that, according to Rightmove, around 86% of current properties up for sale fall under the £600,000 threshold.
(Source: Rightmove, March 2021)

The scheme will launch across the UK in April (and is planned to run until December 2022). It’s similar to the previous Help-to-Buy mortgage guarantee scheme, which closed to new loans at the end of 2016, a policy the Treasury said ‘reinvigorated the market for high loan-to-value lending after the 2008 financial crisis’.

What it means for the borrower

From the borrower’s perspective it won’t be that different to getting a normal mortgage. For example, you might put down a 5% deposit and then borrow the remaining 95% in the form of a mortgage loan from the chosen lender.

For lenders, they’ll see that providing funds to borrowers with small deposits carries less risk. However, the lender will have to ‘buy’ the guarantee and the Government has given lenders the freedom to set their own interest rates, so there are no guarantees that you’ll get an attractive rate.

Plus – it’s not the only route forward…

The scheme may have a positive effect on property prices (or at least, lessen any price falls), which means it should deliver greater confidence throughout the housing sector. Albeit any property price rise may adversely affect the very group it’s largely designed to support – the First-Time Buyer.

However, increased confidence in the marketplace should result in greater enthusiasm from lenders to offer more regular mortgage deals that only require a 5-10% deposit.

For some, there’s also the possibility of support from the Bank of Mum & Dad (plus Grandparents), which could enable some borrowers to gain access to the better rates on offer, by providing a larger deposit.

As we are working with these issues day-in/day-out, we fully understand the options on offer, and how to best navigate them, so please get in touch.

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