The new deals for borrowers with a 5% mortgage are available from the major high street banks and are being hailed as a vital aid in helping more young people get onto the property ladder.
But new analysis of the deals which were launched last week revealed they did not necessarily offer the best value to borrowers.
And anyone with a 5% deposit considering using the scheme is being urged to look at the growing number of alternatives, which are not part of the government scheme, in order to find a competitive rate and terms.
The best value deals
Moneyfacts.co.uk, revealed the best value mortgage for people with a 5% deposit, was Barclays Springboard mortgage – a five-year deal which was one of the few 95% mortgages not to be pulled from the shelves during the pandemic.
Although this deal requires someone to act as a guarantor, at 3.45% it provides the cheapest rate of all the 95% products on the market.
But what about those buyers who don’t have a guarantor or family assistance to support their bid for homeownership?
According to Moneyfacts, Lloyds Bank’s 95% government-backed deal offers the best value in the two-year fixed rate market at the moment. It has a rate of 4%.
However, in the five-year fixed rate market, it’s Coventry Building Society – which is not part of the government scheme – which has the lowest ‘true cost’ product on offer. It’s 95% deal has a rate of 3.89%.
With 112 deals now on offer for those with a 5% mortgage – of which 72 were not part of the mortgage guarantee scheme – borrowers have a great deal of choice to explore.
Eleanor Williams, finance expert at Moneyfacts, said: “As house prices and rents continue to climb, aspiring homeowners may have been waiting with bated breath for the launch of the government mortgage guarantee scheme, supporting those with small deposits to take on a mortgage.
“Approximately a week on since the biggest lenders launched products into the scheme, our analysis shows how this has impacted the sector and why borrowers may still be wise to look at deals outside of the scheme. Indeed, of the 112 deals now on offer at 95% LTV, 72 do not sit inside of the mortgage guarantee scheme.”
Consider trying to save for a 10% deposit deal
Williams said affordability might remain a concern with borrowers, regardless of the new scheme.
As such she suggested consumers may find much more choice and lower rates if they could stretch their deposit to 10%.
“Borrowers could see a significant difference in monthly repayments by choosing a 90% LTV deal, saving as much as £1,486 over two years or £3,379 over five years on a 90% LTV deal compared to a 95% deal on average,” she explained.
“Whether borrowers need to put their immediate plans on hold to achieve this will depend on their circumstances of course,.
“Borrowers ready to apply for a mortgage may need guidance as to whether they can meet eligibility criteria, such as with income multiples, employment status or indeed the property type.
“As the sector remains volatile and available options are changing with great regularity, it has likely never been more important for borrowers to secure up-to-date market knowledge to ensure they are able to consider the whole package and select the best possible mortgage for their circumstances.”
