Now the dust has settled following the recent Budget and with many of the big banks committing to support the 95% government backed mortgage scheme, what’s not to like?
First of all, what we should welcome is the greater choice this gives borrowers. Also, the fact that the scheme is available within the second hand property market – as opposed to new build only as per the Help to Buy scheme – gives borrowers many more potential properties to choose from.
A year ago and in most cases, lenders acted prudently at the onset of the pandemic to restrict higher loan-to-value (LTV) mortgages, along with tightening affordability and greater restrictions around certain types of employment – such as self-employed – as we entered the unknown and faced the unprecedented crisis.
But it meant that choice became – and has remained – somewhat limited, especially for first-time buyers.
A year on and with an exit on the horizon thanks to the vaccine, lenders are increasingly able to make lending decisions with more confidence and so we have seen a steady increase in options available at 90% LTV.
More options have subsequently resulted in driving rates down, as lenders compete with each other.
Competition
Fundamentally, this is the reason for an initial concern around the new government 95% scheme, as although the major high street banks have confirmed their support, which is fantastic, the relatively small lender pool is unlikely to provide enough competition to substantially drive down rates.
This in turn will affect many borrowers’ ability to qualify for a mortgage, as the higher rates will impact upon overall affordability especially as the latter is still one of the elements in a lenders underwriting assessment that has remained cautious.
Ultimately, this will mean that either access to the new scheme is a stretch in terms of income affordability or is not attainable at all.
Stamp duty holiday
Despite this, the tapering of the Stamp Duty Land Tax (SDLT) holiday until the end of September will still save borrowers some money and so the option of having enough for a 10% deposit may be available to a few more than it would normally be.
We are all waiting to see the announcements from the participating lenders in terms of their initial product ranges and the criteria they will apply from April, and like Help to Buy, we should expect to see more lenders join the scheme over time.
This ultimately will drive down rates, like we witnessed on Help to Buy, but initially let’s not expect miracles whilst still being thankful that the scheme exists at all.
Obtaining a mortgage and gaining that first step on the ladder can be daunting and the complexity bewildering, but what has become clear over the last twelve months is the value of seeking advice from a mortgage broker at the outset to help navigate the options available.
For those who fit affordability, monthly repayments may not ultimately be cheaper than their monthly rent, but they will have moved from being a member of Generation Rent to a home owner and so let’s all applaud that!
Hiten Ganatra is managing director of Visionary Finance
