BUDGET 2021: 95% mortgage scheme launches in April
Chancellor Rishi Sunak has announced a new mortgage guarantee scheme that will boost the number of 95% mortgages to borrowers with just 5% upfront.
The Government-backed mortgages aimed at first-time buyers will remove one of the biggest barriers to home ownership – saving a big enough deposit.
Who can get one?
The scheme will be available to homebuyers taking a residential mortgage on their sole residence, so not on a buy-to-let, second or additional home.
They can be taken on a property purchase up to £600,000, where the borrower has a deposit of between 5% and 9% of the property’s value and needs to borrow 91% to 95% as a mortgage.
The mortgages must be repayment, not interest only, and the borrower has to meet the affordability criteria of the lender.
This might include a credit score, stress test and maximum loan to income ratios. In order words the mortgage borrower must be able to show that the mortgage is affordable, now and if interest rates were to rise.
Jonathan Hopper, CEO of the buying agents Garrington Property Finders, said: “Enabling would-be buyers to get on the property ladder with a smaller deposit – just 5% of the value of the property – will solve one of the mortgage industry’s blind spots and energise first-time buyers. These young buyers are rightly seen as the key to driving progress right across the property ladder.”
But Alex Hammond, director of the Mortgage Market Alliance, cautioned: “It is important to stress that the guarantee here is for lenders – to encourage greater availability of loans for buyers with small deposits – and offers no protection to consumers.
“It will, however, give more confidence to lenders that the government is supporting the market and unlikely to let house prices fall. This could encourage even greater availability of mortgages outside of this particular scheme, for customers with a diverse range of circumstances.”
The scheme is intended as a temporary measure and will be open for new mortgage applications from April 2021 to December 2022.