First-time buyers will be able to get Government-backed mortgages with deposits of just 5 per cent from five major banks and building societies from today.
The scheme, which is also open to current homeowners, was first announced in the Budget and will see lenders advance 95 per cent of the purchase price on homes worth up to £600,000.
The Government will underwrite the mortgages in order to give lenders the confidence to offer loans with such low deposits.
On the ladder: 5% deposit mortgages could make it easier for first-timers to buy a home
Lloyds, Santander, Barclays, HSBC and NatWest so far are all offering the loans, while Virgin Money will begin offering them next month.
The scheme will be open to new applications until 31 December 2022, and people from every country in the UK will have access to them.
Not all of the lenders have yet released full details of the mortgages they will offer.
Santander has released its rates, which will be:
- A two-year tracker rate at 3.99 per cent with zero product fee and free valuation
- A three-year fixed rate at 3.99 per cent with zero product fee and free valuation
- A five-year fixed rate at 4.09 per cent with zero product fee and free valuation
It also said its 95 per cent mortgages would not be available on new-build homes, and that it would only lend on flats or leasehold properties up to the value of £400,000.
Santander said that under the terms of the scheme, the Government would guarantee the amount of the mortgage lending over 80 per cent.
Other lenders have already launched 5 per cent deposit mortgages independently of the Government scheme. These include Bank of Ireland, Coventry Building Society and Accord, part of Yorkshire Building Society.
The guarantee scheme is similar to the Help to Buy: Mortgage Guarantee scheme which ended in 2016, although that was limited to just first-time buyers purchasing new-build homes
The Government said its figures showed that demand for home ownership had soared during lockdown, with nearly 80 per cent of private renters now saving for a deposit.
However, first-time buyers and those with low deposits have struggled to get on the ladder after many lenders pulled their 5 per cent and even 10 per cent deposit mortgages at the beginning of the pandemic.
This was due to concerns about staff capacity but also potential changes in borrowers’ financial situations.
Lower-deposit deals have since started to trickle back into the market, but at interest rates more than double those being offered to home movers and those with bigger deposits.
Announcing the new mortgages, Chancellor of the Exchequer Rishi Sunak said: ‘Every new homeowner and mover supports jobs right across the housing sector, but saving for a big enough deposit can be hard, especially for first time buyers.
‘By giving lenders the option of a Government guarantee on 95 per cent mortgages, many more products will become available, boosting the sector, creating new jobs and helping people achieve their dream of owning their own home.’
Miguel Sard, managing director of home buying and ownership at NatWest said: ‘For those customers, particular younger or first-time buyers, saving up for a big deposit can often be difficult, and we know people in these groups are some of the hardest hit by the effects of the pandemic.
‘A government backed scheme will help segments of the market for whom home ownership has felt far out of reach in recent months.’
The guarantee scheme is similar to the Help to Buy: Mortgage Guarantee scheme which ended in 2016, although that was limited to just first-time buyers purchasing new-build homes.
According to Savills, that scheme supported 105,000 transactions during its life from October 2013 to June 2017, or 28,000 transactions per year.
Regardless of whether they are using a support scheme, borrowers can still only take out a mortgage equivalent to 4.5 times their annual income.
Some buyers on lower incomes, particularly those not buying as part of a couple, may struggle to access the new 5 per cent deposit mortgages.
For example, a person on a salary of £39,000 buying alone would be able to borrow £175,500.
If £175,500 was 95 per cent of their property’s value, the most they would be able to afford with a five per cent deposit would be a home worth £184,600.
House prices increased by 8.5 per cent in 2020, reaching a record high of £252,000, according to the ONS.
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