04 Mar 95% Mortgages
Find out more about the new 95% mortgage guarantee scheme and whether it could help you buy your home with a 5% deposit.
In the Spring Budget this week, the Chancellor announced a new mortgage guarantee scheme for first-time buyers and home movers. This residential mortgage scheme will involve the government offering a guarantee to banks to encourage them to offer 95% mortgages from April 2021 to December 2022, with new and existing properties priced up to £600,000 all eligible.
The scheme will be quite similar to the Help to Buy mortgage guarantee scheme, which ran from 2013 to 2016 and was used by 105,000 buyers. This new scheme was designed to encourage banks to start offering 95% mortgages again, after almost all products were withdrawn during the pandemic.
What is the Mortgage Guarantee Scheme?
Set to launch in April, the mortgage guarantee scheme will see the government ‘guaranteeing’ 95% mortgages for buyers with 5% deposits. Under the terms of the scheme, the government will guarantee the portion of the mortgage over 80% (so, with a 95% mortgage, the remaining 15%). This means the government will partially compensate the lender if a homeowner fails to pay their mortgage.
What is a 95% mortgage?
A 95% mortgage is a loan for 95% of a property’s valuation price, where you pay a 5% deposit to cover the rest. For example, if you wanted to buy a house worth £200,000 with a 95% mortgage, you would put down £10,000 of your own money and borrow the remaining £190,000.
95% mortgages are also described as having a ‘95% LTV’. ‘LTV’ stands for loan-to-value which means the percentage of the property’s value that’s being covered by the mortgage.
95% mortgage rates & availability
The government says that major banks including Barclays, HSBC, Lloyds Bank, NatWest and Santander have all committed to launching 95% deals from April. Virgin Money and some other lenders look set to follow suit shortly after that. Under the terms of the scheme, participating lenders will need to offer a five-year fixed rate mortgage as part of their range. The government says this will give borrowers the security of predictable repayments for a longer period. Mortgage rates and availability will depend on your personal circumstances.
Could you get a 95% mortgage?
The mortgage guarantee scheme is open to first-time buyers and home movers across the UK who pass the usual mortgage application eligibility criteria of affordability checks, credit scoring etc. Second homes and buy-to-let properties are not permitted. Both new-build and existing properties priced up to £600,000 are eligible. You’ll need to apply for a repayment (not interest-only) mortgage and the mortgage you’re applying for will need to be for between 91% and 95% of the value of the property you’re buying, which you’ll see described as ‘LTV’.
Alternatives to 95% mortgages
Broadly speaking, the higher the proportion of the property price you borrow, the higher the rate of interest you’ll pay on your mortgage. For that reason, if you’re able to apply for a more standard 90% mortgage it may be well worth it in the long run. It’s now common for young people, particularly first time buyers, to receive a contribution from parents or other family members to help with a house purchase. Some lenders offer guarantor mortgages, which allow a parent or family member to help you buy a home. Please read our blog on the Bank of Mum & Dad to find out more about this >>
There are some other schemes that can help you buy a home with a small deposit such as the Help to Buy scheme. This offers a 20% equity loan (40% in London) from the government on new-build properties in England. From April, it’ll be limited to first-time buyers and regional price caps will limit the cost of homes sold under the scheme. Wales also has its own version of Help to Buy.
If you’re looking to buy a home in a more expensive area such as London, a shared ownership scheme could offer you a good option. They involve purchasing a stake of as little as 25% of a property and paying rent on the remainder.
Why seek professional mortgage advice?
It is very important to seek professional mortgage advice to suit your personal circumstances and financial wellbeing. Our mortgage experts then will do the hard work for you to recommend the best product to suit your requirements. If you would like to find out more, we offer an initial appointment at no cost or obligation to explore the options which can be done remotely via phone or video call such as Zoom or Skype.
Your home may be repossessed if you do not keep up repayments on your mortgage.