The Mortgage Guarantee Scheme provides deals for people with only a 5% deposit who therefore require a mortgage for 95% of their property’s value – so-called 95% loan-to-value (LTV) deals. These products became virtually non-existent following the outbreak of the pandemic last year. Several mortgage lenders – including Halifax, HSBC, Barclays, NatWest and Santander – will be offering the government-backed loans for properties up to £600,000. But having unveiled details of the mortgages they will be offering, experts are warning potential users of the scheme to ensure they scour the market well before choosing a deal as the rates on offer are higher than average. Ross Boyd, CEO of ‘always on’ mortgage switching platform, Dashly, said: “While today’s announcement will undoubtedly be welcome news for generation rent, especially as UK house prices have risen to record levels, buyers should be aware of the interest rates attached to these schemes – sometimes as high as 4% – and the long-term affordability.” Indeed, just having a 5% deposit is no guarantee a borrower will be accepted for the scheme as they will also be subject to affordability tests. What’s more, some of the lenders are not lending on new build properties, which will restrict the type of home some buyers will be able to purchase if using the scheme.
What are deals like?
NatWest said it would be offering its 95% LTV deals to both employed and self-employed customers, with the mortgages. It will have a two-year fixed rate at 3.90% and a five year fixed rate at 4.04% – no product fees apply to either deal. Santander said customers can apply for its two-year tracker (3.99%), three-year fixed rate (3.99%) and five-year fix (4.09%) directly or via a broker. All its 95% deals come with zero product fees and free valuation. It will not lend to customers purchasing new builds. Barclays, meanwhile, confirmed its products would consist of a 3.99% two-year fixed rate and a 4.09% five-year fixed rate. Both had zero fees and were not available on new builds. HSBC is offering at two-year fixed rate deal at 3.99% with a £999 fee or borrowers can pay 4.29% and benefit from the lender’s ‘feesaver’. A similar offer applies to the five-year offering which has a 4.29% rate for borrowers paying a £999 fee or a 4.49% rate on the feesaver. Scour the market for the best deal For anyone looking at taking out one of these deals, experts are urging them to make sure they scour the market to make sure they can compare all the available 95% deals. While the big banks are offering 95% deals under the government scheme, a number of other lenders – such as Yorkshire Building Society, Atom Bank and Leeds Building Society – are offering their own 95% loans too. There are also deals for borrowers with small deposits which are only available via mortgage brokers. Therefore, it’s worth speaking to a broker to get a better grasp of what’s on offer – they will also be able to help you find a lender whose criteria you are most likely to fit. Iain McKenzie, CEO of the Guild of Property Professionals, said: “Do shop around if you’re tempted by taking out a 95% mortgage, as some of the rates on offer for a two-year fixed deal are 3.9% – more than 2% higher than the cheapest deals on the market. “It is also worth checking whether the property you have your eye on is suitable for one of these new mortgages, as Halifax and Barclays have said that new-build properties will not fall under the scheme. “While this is good news for property owners and first-time buyers, these measures could be like pouring gasoline on a roaring fire, potentially propelling house prices to higher and higher heights into the summer.” [box style=”4″] Need help to find a mortgage? What Mortgage has teamed up with L&C to offer you expert advice on the right mortgage deal. Whether you’re buying a new home, remortgaging to a new deal or buying an investment property, L&C can help – and you’ll pay no fee for their advice. To find out more, click here. [/box]
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