First-time buyers and other buyers with smaller deposits can potentially benefit from this new government-backed scheme involving high street lenders.

The new 95 Per Cent Mortgage Scheme announced at the budget last month was launched on Monday 19 April. The government-backed scheme is intended to help people with smaller deposits of around five per cent buy a property. The scheme means that lenders can purchase a government guarantee for 95 per cent mortgages that compensates them for losses if they have to foreclose on a property.

The government says the scheme follows on from the success of the 2013 Help to Buy Mortgage Guarantee Scheme that helped restore the low deposit mortgage market after the credit crunch in 2007.

The scheme is available to first-time buyers, but you don’t have to be one to benefit. High street lenders participating in the scheme include Lloyds, NatWest, Santander, Barclays and HSBC, with Virgin Money joining next month.

Lower deposits

Last year, first-time buyers and borrowers with lower deposits were negatively affected when many lenders withdrew 90-95 per cent mortgages to cope with high demand. Although many lenders have re-introduced more generous borrowing levels, it’s been a tough time for anyone seeking to get onto the property ladder. Buyers with smaller deposits will welcome the scheme, but bear in mind you’re likely to need an excellent credit history. It’s also important to be realistic about what you might be able to borrow.

‘While the scheme is undoubtedly good news for buyers who haven’t been able to amass enormous deposits, the lenders are going to be selective with who they lend to,’ explains MB Associates’ Sales Manager Phil Leivesley. ‘Prospective borrowers are likely to need spotless credit files and it would appear that lenders are capping what they will lend at a multiple of four and a half times a borrower’s income.’

Borrowing criteria

There is also certain criteria to meet. To be eligible to take advantage of the scheme, you must be taking out a residential mortgage and not a buy-to-let. You must be applying for a mortgage on your own or with another individual and not as a company. Your mortgage must be a repayment mortgage and not interest-only.

The property you’re purchasing can have a value of up to £600,000 or less and you must meet standard lending criteria and prove that you can afford the monthly repayments.

With more options for buyers with smaller deposits, the booming housing market is likely to get busier. ‘Estate agents were already reporting huge demand and a significant lack of supply, so the introduction of even more buyers is likely to make an already competitive marketplace even more competitive,’ says Phil. ‘Until we see a greater supply of properties for sale we can expect to see house prices to continue to increase.’

The government says the scheme is temporary and is open from 19 April 2021 to December 2022. It has said it will review the continuing need for the scheme near the planned end date.

For more information on the 95 Per Cent Mortgage Guarantee Scheme, and how to benefit from it, please get in touch with us. We will be glad to help and answer any questions you may have.

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