The government's new 95% mortgage guarantee scheme has launched, with a number of lenders including HSBC, Barclays, Santander, NatWest, and Lloyds now further supporting borrowers with smaller deposits.
Under the scheme, buyers will be allowed to acquire properties valued up to £600,000 with a 5% deposit. However, this will not be restricted to first-time buyers or specific properties and many existing homeowners are predicted to utilise the offering and reap the benefits as well.
The initiative aims to help those with smaller deposits get onto the housing ladder by offering incentives to lenders in order to provide 95% LTV mortgages, following the removal of many of these due to the pandemic.
Robert Jenrick, Housing Secretary, comments: "For too many people, no matter how hard they work, homeownership can seem out of reach. One of the biggest divides in our country has been between those who can afford their own home and those who cannot.
"That’s why we are determined to do everything we can to help hard-working families and prospective first-time buyers get their feet on the housing ladder in an easy and affordable way, to level up this country.
"The new mortgage guarantee scheme which comes into effect today will give providers the confidence to lend and help families and young people get on the property ladder without the prohibitive burden of a large deposit.
"Despite the challenges faced over the past year, the government has intervened to protect jobs, support builders and buyers to help keep the housing market healthy. Today’s 95% mortgages launch further strengthens our commitment to build back better from the pandemic.
"In recent years we’ve reversed the trend and seen a positive increase in owner-occupiers. We’re determined to build on this through the range of flexible ownership options which help ensure homeownership is achievable. We want to match the ambitions of aspiring homeowners up and down the country.
"Together we can turn ‘Generation Rent’ into ‘Generation Buy’."
Tim Bannister, Rightmove’s director of property data, says: “The new mortgage scheme could help some first-time buyers bring their plans forward if they have a lower deposit but are still able to pass the affordability checks, and will be welcomed by those who last year we’re struggling to come up with a 15 or 20% deposit.
“Although the number of new properties coming to the market is improving, it’s still nowhere near enough to satisfy the buyer demand that is already at record levels, and so more people choosing to trade up will be vital to open up more choice at the start of the property ladder.
“The combination of not enough stock and high demand will help underpin prices, and over the past five years asking prices of a typical first-time buyer home have already increased by £23,000 on average, so those who can now afford to buy a home will be trying to make the move quickly in case prices rise further.”
Richard Donnell, director of research and insight at Zoopla, adds: “Supporting buyers with small deposits is key to widening access to homeownership for a part of the mortgage market that has been under-served. It is not a mass-market solution and it’s vital we have a competitive market for lending up to 90% LTV for a healthy housing market.
“Greater availability of 95% mortgages will have the greatest benefits for buyers in lower value housing markets in northern England and Scotland where a 95% mortgage is more attainable.
“The scheme will have less impact for buyers in southern England where high house prices are a major barrier to being able to afford a 95% mortgage. This aligns to the levelling up narrative and policy approach of government.”