The government-backed 95% mortgage scheme that was announced at the Budget is now available to lenders. The scheme aims to help first-time buyers or homeowners obtain a mortgage with a 5% deposit to buy a property of up to £600,000.
The scheme is one of a range of flexible home ownership options available. These include Help to Buy, Shared Ownership and the First Homes Scheme. Figures show that the number of mortgage approvals for house purchases in January 2021 was 99,000. This is a 40% increase on January 2020.
Chancellor Rishi Sunak said: “By giving lenders the option of a government guarantee on 95% mortgages, many more products will become available, boosting the sector, creating new jobs and helping people achieve their dream of owning their own home.”
Who is offering 95% mortgages?
Some of the UK’s biggest lenders such as; Lloyds, Santander, Barclays, HSBC and NatWest have all launched mortgages under the scheme. Virgin Money is set to follow next month.
Other lenders, such as Accord Mortgages and Coventry for intermediaries, returned to the 95% LTV market in March ahead of the scheme’s launch. However as from April 19, Accord has also opened up its 95% LTV mortgage to homemovers in the form of a five-year fixed rate product at 3.99 per cent.
The flood of new deals means that there are now 68 fixed-rate mortgages available to first-time buyers. This is the highest number recorded since last April. As the scheme progresses and more lenders join, it’s likely this number will rise significantly.
How does it work?
Under the new scheme, the government will compensate the lender for a portion of the net losses suffered in the event of repossession.
The guarantee will apply down to 80% of the purchase value of the guaranteed property. It will be valid for up to seven years after the mortgage is originated.
Since 2010, more than 663,000 households have been helped into home ownership through government schemes, but when asked, 69% of private renters and 63% of those living at home who had looked into a mortgage said they cannot find many mortgages with a low deposit.
What’s the rates?
Before the start of the pandemic, it was possible to get a two or five-year 95% mortgage with a rate of below 3%. These deals show that we’re a long way from seeing such low rates again. With the scheme in its infancy, lenders are proceeding with caution, with most bunching their deals around the 4% mark.
This shows that lenders are very much sizing up the market and gauging demand at the moment. This action plan is similar to when 90% mortgages were relaunched in the winter. As the weeks pass and more banks begin to offer 95% deals, we may see rates start to drop.
Two-year fixes
The good news for cash-strapped first-time buyers is that many lenders are offering fee-free deals. The likes of Natwest, RBS and Atom Bank have all launched deals at below 4% with no up-front fee.
Five-year fixes
Five-year fixes used to be considerably more expensive than two-year deals, but those days are very much over, with rates now only slightly higher.
How much can I borrow with a 95% mortgage?
When you take out a mortgage, lenders will set limits on how much you can borrow in relation to your income.
The majority of 95% deals launched so far are available at up to four-and-a-half times your household income. This means that if you’re buying with a partner and you each earn £30,000 (£60,000 in total), you should be able to borrow up to £270,000.
However as from April 26, Nationwide will be launching a 5.5x income product up to 90% LTV for 5-10 fixed rates. This will be available on both second-hand and New Build properties, subject to standard maximum LTVs.
How much you can borrow with the scheme will vary depending on other circumstances. These include; your outgoings, debts and any issues with your credit report.
Will the new scheme make 90% mortgages cheaper?
90% mortgage deals were also decimated by the pandemic, but numbers have been on the rise in recent months. There are now 267 fixed-rate 90% deals available to borrowers, compared with just 88 at the start of December.
Despite the influx, rates have only dropped slightly in the past couple of months. The cheapest two-year fix is at 3% and the cheapest five-year deal priced at 3.3%.
If you can stretch to a 10% deposit, it’s worth keeping an eye out in the next few weeks to see whether the surge in 95% deals has a knock-on effect by pushing down the cost of 90% mortgages.
How can I find out if I’m eligible?
We’ve had a large influx of enquiries and response to the 95% mortgage market introduction. Along with more lenders joining the scheme, it will prove to be even more positive for potential homeowners.
Want more information about the scheme? Please call 01634 968111 or submit an enquiry here.
