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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 announced a new guarantee scheme designed 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 which 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 were largely wiped out in the last year as a result of the coronavirus crisis and its impact on the UK economy. Most mortgage lenders would only offer a maximum 90 per cent loan-to-value, asking buyers to provide a 10 per cent deposit.
This made it more difficult for first-time buyers to get on the property ladder, particularly in expensive areas such as London where saving a large deposit can prove challenging.
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 had started to reappear in recent years, but the backlog of mortgage applications caused by the Covid-19 crisis prompted many lenders to remove them from the market.
The new scheme appears to have piqued buyers’ interest already, with Rightmove revealing that the use of its mortgage calculator jumped by 85 per cent within half an hour of Sunak’s announcement, while overall traffic to its website increased by 16 per cent.