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95 per cent mortgages
3rd March 2021First-time Buyers to Lenders, what we know about Budget 2021’s Guarantee Scheme
After days of speculation, chancellor Rishi Sunak confirmed in his Budget speech today that the government will back a new mortgage guarantee scheme.
Sunak has announced a new guarantee scheme to bring back the low-deposit mortgages that he previously said had “virtually disappeared”.
In his budget speech, the chancellor said it was: “a policy who gives people who can’t afford a big deposit the chance to buy their own home.”
But how will the new government-backed 95 per cent mortgages work? And would you be able to get one?
From small deposits to the risks of negative equity, here’s what you need to know about the new measures aimed at giving (some) first-time buyers a helping hand.
Why has Rishi Sunak put 95 per cent mortgages in the Budget 2021?
Low-deposit mortgages have been wiped out in the last year as a result of the coronavirus crisis’s impact on the UK economy. Most mortgage lenders will only offer a maximum 90 per cent loan-to-value, asking buyers to pay a 10 per cent deposit.
This makes it more difficult for first-time buyers to get on the property ladder, as they can struggle to save up a large enough deposit, especially in expensive areas such as London.
“For those with little in the way of deposit, finding a 95 per cent LTV mortgage has been pretty much impossible in recent months,” said Mark Harris, chief executive of mortgage broker SPF Private Clients, ahead of Sunak’s announcement.
“The odd building society here and there has offered them, with Saffron building society launching at 95 per cent in June but it only lasted a matter of days. Furness BS also has a selection of 95 per cent products but these are restricted to certain postcodes.”
Low-deposit mortgages also became a rarity in the years following the 2008 financial crash, prompting the introduction of the Help To Buy scheme under David Cameron’s government. Higher loan-to-value mortgages have started to reappear in recent years, but the backlog of mortgage applications caused by the Covid-19 crisis prompted lenders to take them off the market.
“A government backed mortgage guarantee scheme will help first time buyers get on the housing ladder at a time when for many owning a home seems an impossible dream,” said Mark Hayward, chief policy adviser at Propertymark, prior to the Budget.
“Alongside the potential extension of the stamp duty holiday that we have been calling for, this new scheme will go some way in giving some hope to first time buyers at a time when the size of deposits required means they fall at the first hurdle.”
The new scheme seems to have piqued buyers’ interest already, with Rightmove revealing that the use of our mortgage calculator jumped by 85 per cent within half an hour of Sunak’s announcement, and overall traffic to its website jumped by 16 per cent.
Which lenders will be offering the 95 per cent mortgages?
In his budget speech, the Chancellor said that “several of the country’s largest lenders including Lloyds, Natwest, Santander, Barclays and HSBC will be offering these 95% mortgages from next month.”
He also said that “more, including Virgin Money will follow shortly after.”
These big names may have already committed themselves, but some agents are sceptical about how widespread the uptake will be among lenders.
“Banks have demonstrated a reluctance to lend in this market during the past twelve months, partly due to the sheer volume of business at lower LTVs and partly due to concerns over the outlook for jobs,” said Oliver Knight, head of residential development research at Knight Frank.
“Though that outlook is improving, the success of the scheme will depend on how many lenders take it up, on top of those announced so far, and what pricing they adopt. The government will be hoping the guarantee will significantly stimulate appetite to lend in that space.”
Islay Robinson, CEO of Enness Global Mortgages, added: “Although many big lenders have committed to the government’s announcement today, it will be interesting to see just how many buyers are able to secure such a product when it comes to actually applying.”