In his Budget speech the chancellor said the government would provide a guarantee to lenders to enable them to provide 95% mortgages for anyone who wants to get on – or step up – the housing ladder.
He revealed the UK’s biggest lenders, including Lloyds, Santander, Barclays and HSBC, would be offering the government-backed mortgages for those with 5% deposits from April.
And others – including Virgin Money – would be following on shortly after, he said.
Currently there are very few mortgages available for buyers with 5% deposits who want to get on or up the housing ladder. And the availability of 90% loans, for those with 10% deposits, has also fallen since the pandemic.
Today’s announcement will come as welcome news to first-time buyers and anyone with less than 10% equity required to get a mortgage on their next property.
Rachel Springall, finance expert at Moneyfacts.co.uk, said: “Those looking for a mortgage may be elated by the news that the government will be tackling the lack of 5% deposit mortgages, as this area of the market has deteriorated over the past year to just a handful of lenders with deals that would only suit certain customers.”
Springall explained, unlike the Help to Buy Scheme, the plans would not be restricted to first-time buyers or new-build homes, instead all borrower types where the properties had a value of up to £600,000. It would run until the end of 2022.
She added, “However, it will be interesting to see whether the supply of affordable homes will keep up with demand.”
More help needed
While many mortgage and property professionals welcomed the development – with some even calling it ‘transformational’ – others were sceptical the 95% mortgage scheme would go far enough to help improve homeownership.
Colin Bell, COO and co-founder of Perenna, which is developing a long-term mortgage solution for buyers said: “These latest plans from the government for a 95% Mortgage Guarantee scheme will help to remove some of the barriers to homeownership facing first-time buyers.
“However, for the first-time buyer market to really flourish we need to cure not just the loan-to-value challenge but address affordability issues too.”
Bell thinks long-term mortgages could be the answer, providing borrowers with a guaranteed rate and repayments for as long as 30 years, but with the flexibility to switch after five years at no cost if they want to.
Ian Larkin, CEO at online mortgage broker Trussle, was concerned the initiative would inflate house prices. He said: “There’s still a danger that this initiative won’t be enough to turn Generation Rent into Generation Buy. The new scheme is likely to increase demand amongst buyers who are in a position to take advantage which could lead to inflated house prices.
“Additionally those earning lower salaries, as well as those living in areas where house prices are high, still may not pass lender affordability requirements to get a higher loan, despite having a 5% deposit.”
