The Government backed Mortgage Guarantee Scheme launches this week, seeing some of the UK’s biggest lenders introduce 95% mortgages for those with just a 5% deposit.

The scheme was announced by Chancellor Rishi Sunak in his Spring Budget and is available to homebuyers buying properties of up to £600,000.

The new mortgages are designed to help those with small deposits, typically first-time buyers, to get finance for a home. In January 2020 there were 313 first time buyer mortgages available for those with a 5% deposit, said Defaqto, but by June that year these had all been pulled.

Since then, there has been a handful of high loan to value (LTV) deals back in the market, but this is the first time since May 2020 that the mainstream banks have been active in this space.

The scheme is open to new 95% mortgages until 31 December 2022.

More 95% deals announced

The following lenders have announced the details of their deals this week following Halifax last week.

HSBC

The lender is launching a pair of two-year and five-year deals with £999 fee and zero fee options.

Rates are 3.99 per cent and 4.29 per cent for the two-year mortgages and 4.29 per cent and 4.49 per cent for the five-year versions.

The range is available through advisers and direct with the bank.

Santander

Santander has announced a two-year tracker or a three-year fixed rate mortgage at 3.99 per cent.

At 4.09 per cent families can fix for longer with a five-year deal.

None of the 95 per cent mortgage deals come with a product fee and all have a free valuation.

Borrowers who want to buy a new-build property will need to use the Help to Buy equity loan scheme. The Help to Buy equity loan scheme is now only available to first-time buyers.

Which mortgages are the best?

Borrowers now have 38 new mortgages available to them from today under the government guarantee scheme, according to Defaqto.

The financial information provider said the most competitive guaranteed two-year fix is from NatWest at 3.90% without a fee. Until today there were no deals in this space up to 95% of the property’s value, and now there are 19 available, from Barclay, Halifax, Lloyds, HSBC, NatWest and RBS.

For those wanting to fix for five year the best mortgage is a product available outside the scheme from Coventry Building Society at 3.89% with a £999 fee. There are now 19 new five-year fixed period mortgages available under the scheme.

Katie Brain, banking expert at Defaqto, said: “When the pandemic started, all the mortgage deals for first time buyers and those with small deposits just disappeared. Many who had saved hard for a deposit found themselves unable to get finance and were effectively shut out from the property market.

“Although there have been a few products that been briefly available during the pandemic, this is the first time that we have seen mainstream lenders in the high LTV market in nearly a year. The new government backed mortgages are very competitive for anyone who wants a two-year fixed deal, although borrowers should always consider all the options before taking out a loan.”