Chancellor Rishi Sunak has announced a new ‘Government Backed Mortgage Scheme’ to help buyers purchase a home with as little as 5% deposit.
What is the Mortgage Guarantee Scheme?
The chancellor said there is a significant barrier to people getting on the housing ladder and this scheme will provide a chance for those who can’t afford a big deposit to buy their own home.
Starting in April 2021, it will help first-time buyers, as well as home-movers to secure a mortgage with only a 5% deposit, with the government underwriting 95% loans.
How does the 95% mortgage guarantee work?
Available on all properties up to the value of £600,000, lenders (banks and building societies) will be incentivised to offer 95% mortgages. The government will guarantee to cover part of the mortgage loan if the buyer defaults on payments.
The same affordability checks will apply, and buyers will have to prove they can afford to pay the monthly repayments.
How much deposit will I need?
Until recently, most lenders were offering 85% mortgages (requiring 15% deposit). The new 95% deposit means that first-time buyers only need 5% deposit, which is a third of what they would have previously needed.
As an example, buying a £200,000 home will require a £10,000 deposit. And a £100,000 home will require £5,000 of savings.
How long will it last?
The scheme will begin on the 19th of April 2021 and will be available on new mortgages taken out until 31 December 2022.
What should I do next?
Firstly, identify your budget and the types of houses you would like to buy, calculating a 5% deposit from their value. Once you have a better idea, it’s worth booking an appointment with a mortgage broker to run through your finances and help you find an ideal lender. A good mortgage broker will take the time to present the best options available to you and help you through the process of preparing a mortgage application.
Where can I get advice?
If you would like more support in understanding the new mortgage guarantee scheme, why not book an appointment with our dedicated mortgage brokers? We work in partnership with Willerby Mortgage Services, and their team will be able to offer guidance about this scheme and all other general mortgage enquiries.
Contact us if you have any further questions: