In April’s budget, Chancellor Rishi Sunak announced that 95% mortgages would become available for home-buyers. Essentially, this means that first-time buyers and home-buyers will be able to buy a property with a 5% deposit, which will clearly open up property buying to more people.
This echoes what we’ve heard the current government saying before about property buying and their determination to turn Generation Rent into Generation Buy. Being able to own your own property is an aspiration many people share, especially young people, have potentially faced more challenges than previous generations when it comes to getting on the property ladder. The idea is that this will help more first-time buyers to buy a property, as they have to save less of a deposit.
The rest of the announcement revealed that 95% mortgages will become available from April 2021 until 31st December 2022 and will be limited to homes up to the price of £600,000.
How does it work?
A mortgage lender needs to loan a potential buyer upto 95% of the value of the property they’re looking to buy. The buyer needs to have saved the remaining 5% themselves and this will be the deposit on the property. For example, if a property is £200,000, a mortgage lender could loan upto £190,000 and the buyer would save £10,000 for the deposit. Mortgage lenders will take your income, outgoings, credit score into account and this will influence whether they make you an offer or not. Lenders will be encouraged to offer 95% mortgages because of the government guaranteeing outstanding loans.
However, if a buyer wants to save more towards the deposit then they still can, 95% mortgages are the limit, but you can put as much towards the deposit as you like. If you put more towards the deposit then you’re likely to have a much larger range of mortgages to choose from with lower interest rates. It could still be worth waiting and saving for longer if you wish to do so.
If you’re renting at the same time as saving for a deposit though, it can feel like you’re wasting money you could be saving, so buying your own property as soon as possible is something you want to do. You never know when house prices are going to rise and fall either, so if you decide to wait and save, you could miss out on some attractive properties for your price range and preferences.
Guarantee Scheme
Barclays, HSBC, NatWest and Santander are participating in the 95% mortgage guarantee scheme so far, with the government underwriting 95% mortgage loans. It’s similar to the Help to Buy mortgage guarantee scheme and the government agrees to cover the risks of the borrower being unable to meet their monthly mortgage repayments or if house prices fall – this makes it less risky for the lender to offer a mortgage to first-time buyers and home-buyers.
This is a scheme that’s definitely worth looking into if you’ve been waiting and struggling to get on the property ladder. For any advice or info about buying or selling a property, get in touch with our team at Home EA today.
