Rishi Sunak announced the measure as part of his Budget, telling MPs: ‘Lenders who provide mortgages to homebuyers who can only afford a 5% deposit will benefit from a Government guarantee on those mortgages. ‘I’m pleased to say that several of the country’s largest lenders including Lloyds, NatWest, Santander, Barclays and HSBC will be offering these 95% mortgages from next month, and I know more, including Virgin Money will follow shortly after.
Since the beginning of the pandemic lenders have stopped offering mortgages to those with just a 5% deposit. 95% loan to value products were fairly commonplace up to a year ago but once lockdown restrictions came into force the products were withdrawn.
The new 5% indemnity scheme will see the Government guaranteeing part of the loan, minimising the risk of any negative variance to the value of the home affecting the lender.
What criteria does a property need meet to qualify for the 95% mortgage?
It seems that any non new-build property up to the value of £600,000 will be eligible.
Will these 95% mortgages only be available to first time buyers?
It is likely that anyone will be able to access these mortgages.
What are the interest rates with a 5% deposit?
Interest rates will vary and will be considerably higher than those offered to buyers with a 10% deposit. A low deposit means a higher risk to the lender and this risk is offset by a higher interest rate. This is why we see lower interest rates for 75% loan to value (LTV) mortgages than 80% LTV which in turn are lower than 90% LTV mortgages.
Depending on your circumstances a 95% mortgage may or may not be right for you. If you are currently renting, a high interest rate product maybe be a good financial option. In another scenario saving for another 6 months to achieve a 10% deposit and so securing a mortgage at a lower rate may serve you better.
How does this compare to the Help to Buy Equity Loan?
The Help to Buy Equity Loan scheme is only available for new build properties. The loan is not part of the mortgage but runs alongside it. After the deferred 5-year period homeowners must pay back the loan in addition to the mortgage. Because it is an equity loan it increases and decreases in line with the value of the property. If after the deferred period, the buyer is unable to afford the loan in addition to the mortgage the property may need to be sold.
Lenders take an extremely low risk approach when it comes to new builds with most only permitting buyers to borrow a maximum of 75% of the value of the property allowing for up to a 25% negative price variance. The remaining 25% of the cost of the property is made up with a 5% deposit and 20% Equity Loan.
Ask About Mortgages does not support the Help to Buy Equity Loan Scheme in its current format and continues to campaign against it.
Is a 95% mortgage right for me?
We are first time buyer friendly mortgage advisers. We work with 100’s of first-time buyers planning the purchase of their first home sometimes over a year in advance. We offer honest advice and guidance and we do not charge a fee for our service. We are happy to run through all of the options with you, costing them all out to help you make the right decision.
Your home maybe repossessed if you do not keep up repayments on your mortgage.