5% Deposit Mortgage Scheme Launched - Great news for first time buyers

5% Deposit Mortgage Scheme Launched

The government’s 5% Deposit Mortgage Scheme, which was announced in the Spring Budget, is now underway, helping first-time buyers onto the property ladder.

How will the 5% Deposit Mortgage Scheme Work?

It is designed to help people buy a home despite struggling to put down a deposit.

The lower required deposit will help people in such situations to secure their new home. This is particularly helpful for first-time buyers who don’t have money from a previous house sale to use.

This new mortgage scheme will ask buyers for just a 5% deposit on homes worth up to £600,000 (unless they’re buy-to-let or second homes), whereas lenders were previously willing to offer loans up to 90%, leaving buyers with a 10% deposit to make.

95% mortgages have been a serious rarity during the pandemic, but the scheme will encourage lenders to feel more comfortable in the 95% market.

The launch of this scheme is timely, as house prices in Sheffield and the whole country are on the rise to record levels.

How Does the Scheme Affect Lenders?

If the borrower defaults on the loan repayments, the government is offering a partial guarantee of up to 15% so as to compensate the lender.

To elaborate, the government will offer 95% of any losses a lender makes on the amount of the mortgage above 80% loan-to-value. For example, on a property worth £100,000 with a 95% mortgage, the lender does not have the government guarantee on the first £80,000, but the government would cover 95% of that remaining £15,000.

So the scheme is also designed to give lenders more confidence.

The launch of the scheme was Monday 19th April 2021 and will be available until December 2022, and participating lenders will have to offer five-year fixed mortgages as part of their 95% loan-to-value product range.

Who is Eligible for this Scheme?

Unlike the Help to Buy Scheme, this new government-backed scheme is not exclusively available to first-time buyers only, although they will certainly benefit massively.

Any buyer with a small deposit is eligible for a 95% mortgage if they’re buying a main home.

There are a few criteria:

  • The property must not be worth any more than £600,000.
  • It can not be a new-build property, as lenders are cautious that newly built properties may struggle to retain their value. Therefore, this would cause complications for the lender if the property is ever repossessed in the future.
  • It must be a main residential home in the UK, not a second home or buy-to-let.
  • You must have a deposit of between 5-9% of the property’s purchase price, meaning you’ll have a mortgage loan-to-value between 91-95%.
  • You will still be required to pass the lender’s normal mortgage affordability criteria.

Now is a good time to get onto that property ladder, and our experienced conveyancing team at Wosskow Brown are always here to help you through the process. Why not get your fixed fee conveyancing quote today?

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