UK to launch 5% deposit mortgage guarantee scheme

A 5% deposit mortgage guarantee scheme to help prospective homeowners with smaller deposits onto the property ladder is set to be announced in the Budget tomorrow (Wednesday 3 March).

What will it be like?

Due to start in April, the scheme will help the tens of thousands of young buyers who were excluded from the market by the disappearance of 95% LTV mortgages at the start of the pandemic.

Sunak’s officials say the scheme, which will require first time buyers to scrape together a 5% deposit, will be similar in some ways to the previous Help to Buy mortgage scheme and is designed to be its successor. The previous scheme was introduced in 2013 that ran for four years and was used by more than 100,000 buyers. It will run alongside the existing Help To Buy equity loan scheme which, although also similar, is only for new build homes. It is due to end in 2023.

How will it work?

According to The BBC, the scheme will involve the government offering to take on some of the risk that comes with low-deposit mortgages in order to bring them back onto the market.

The number of mortgage deals available for buyers with a 5% deposit fell from 405 in February 2020 to just 5 at the start of this month, according to data from Moneyfacts. However, other deals popular with first-time buyers have started to recover quickly in recent months after a drop at the start of the pandemic. The number of 90% loan-to-value (LTV) deals climbed from a selection of 70 in July 2020 to 248 this month. Although this figure is still lower than this time last year.

The new scheme will reportedly not be limited to first-time buyers but there will be a maximum property limit of £600,000. No end date for the scheme has been confirmed.

Jack Miller, Mortgage Director

Jack Miller, Mortgage Director of The Residential Mortgage Hub, reacted to the news: “I think the new 5% deposit scheme is amazing and exciting news for the industry. Since the beginning of the pandemic we’ve seen 5% deposits disappear yet we still receive lots of enquiries. It will be great to be able to help all those first time buyers again with smaller deposits.”

The property market

Rightmove announced the latest figures on asking prices and how many properties could be eligible under the scheme.

Their data found that 86% of properties up for sale have an asking price of £600,000 or less. With the national average asking price for all properties standing at £318,580, a 3.0% increase from February 2020. The national average asking price of a first-time buyer property is £200,692, which is 3.6% higher than February 2020.

Since the Help to Buy mortgage guarantee scheme was first launched in 2013, national asking prices have increased by 29% from £246,748 in October 2013 to £318,580 in February 2021.

But even with a 5% deposit, based on average house prices, Rightmove says many first time buyers will still have to save up considerable sums (see below).

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