New 95% mortgage scheme has an instant positive impact
In the Spring Budget 2021 the government announced a new 95% mortgage guarantee scheme. The scheme enables homebuyers to secure a mortgage with a 5% deposit, with the government underwriting the 95% mortgage loan.
While it will mainly be first time buyers who are expected to benefit the most from the scheme, it is available to ALL home buyers from April 2021 on properties worth up to £600,000. And major lenders including Barclays, HSBC, NatWest and Santander have agreed to participate, with more likely to join soon after.
The number of 95% loan-to-value (LTV) mortgages has increased significantly in recent weeks, alongside the demand from buyers, helping to fuel fresh demand for property. This new scheme should support the housing market post-lockdown and once the stamp duty holiday is withdrawn on 30th June.
What is a 95% mortgage?
A 95% mortgage enables you to borrow up to 95% of the purchase price of the property you want to buy, with the remaining 5% made up of your deposit.
An arrangement such as this will sometimes be referred to as a 95% LTV mortgage, where LTV stands for ‘loan-to-value’ ratio. In other words, the mortgage is for 95% of the property’s market price.
A 5% deposit could help you get on the property ladder sooner, as you’ll need to save less of a lump sum.
How does the 95% mortgage guarantee scheme work?
The scheme is similar to the old Help to Buy mortgage guarantee scheme, which closed to new applicants in 2017.
It means lenders have a government guarantee in the event the borrower is unable to meet their monthly mortgage repayments, or if house prices fall and the property is worth less than the outstanding mortgage loan – known as negative equity. Through the scheme the government agrees to cover these risks, which means lenders will be more open to lending to homebuyers with a small deposit.
Can you get a 95% mortgage?
The same affordability checks will be carried out when you apply for a mortgage and having a 5% deposit will not necessarily be enough to secure the loan – even through this scheme. Homebuyers must prove that they can comfortably afford the monthly repayments after other essential spending has been covered.
When it comes to deciding how much they’re prepared to lend you, banks and building societies will take your income, your outgoings and your credit score into account. This will influence whether they offer you a 95% loan-to-value (LTV) mortgage, or whether the maximum LTV they’re prepared to loan you will be less.
Choosing the right mortgage
It’s always important to have honest, independent advice, and we are pleased to be able to recommend Vizion Mortgages who provide a professional and honest service. They are ‘whole of market’ which means that they have no ties to any particular mortgage lenders and are therefore able to offer unprejudiced advice. Finally, where some brokers could charge up to £1,000 in fees, Vizion’s fees are covered entirely by the lender so there is no cost to yourself as the customer.