Aspiring homeowners can now apply for a 95 per cent loan
The Government has launched its loan-guarantee scheme, meaning that more lenders will now be able to offer a 5 per cent mortgage to first-time buyers.
Under the scheme, wannabe homeowners with a small deposit can now apply for a 95 per cent loan, with the lenders providing the loan able to buy a guarantee from the government. This guarantee will see the government compensate the lender for a portion of their losses in the event of repossession.
On Monday, Santander, HSBC, Barclays and NatWest were some of the first to offer 5 per cent deposit mortgages under the new scheme, with Virgin Money set to follow suit in May.
These types of mortgage had initially been pulled by lenders when the Covid-19 pandemic began as they were deemed to be too risky. However they are crucial for first-time buyers who often struggle to save enough for a deposit on a house or flat as house prices continue to rise at a quicker rate than wages.
The Sun reports that the scheme, which applies to properties worth up to £600,000, will cut the minimum amount needed to buy a place by half.
It will run through to the end of 2022 and can be used to buy both new and existing properties.
Housing Secretary Robert Jenrick said that the new mortgage scheme will “give providers the confidence to lend and help families and young people get on the property ladder without the prohibitive burden of a large deposit.”
However it is thought that the scheme will benefit buyers in the north of England and Scotland more, due to the lower property prices in these areas. Zoopla’s Richard Donnel told the Sun: “The scheme will have less impact for buyers in southern England where high house prices are a major barrier to being able to afford a 95 per cent mortgage.”
It is worth also pointing out that only borrowers with the strongest credit ratings and history will have access to the top rates offered by lenders.
