What is the 95% mortgage guarantee scheme?
The government will be ‘guaranteeing’ 95% mortgages for buyers with 5% deposits. This is set to launch in April. There are some lenders that will not taking up the scheme and are releasing 95% mortgages before April.
The scheme was announced in the March Budget which has caused a torrent of media surrounding it. The scheme has been designed to encourage banks to start offering 95% mortgages again after they disappeared in the pandemic.
The government will be guaranteeing the portion of the mortgage over 80% (with a 95% mortgage, the remaining 15%). Simply put the government will partially compensate the lender if a homeowner fails to keep up with mortgage repayments.
The scheme will be quite like the Help to Buy mortgage guarantee scheme, which ran from 2013 to 2016 and was used by 105,000 buyers.
Why launch the scheme in the first place?
The pandemic knocked the market so hard that the number of low deposit mortgages plummeted. In under a year, the number of 95% mortgages available fell from 391 to just 3. Lenders hid away from the riskier loans. The Government is now stepping in and taking on some of that risk.
This scheme has been created to give banks the confidence to offer 95% mortgages again by taking away some of the risks involved.
Who is eligible for 95% mortgages?
The scheme is available for first-time buyers and home movers across the UK, as long as you are buying the property to live in yourself. Second homes and buy to let’s are not offered the scheme.
It will need to be a repayment mortgage and pass the affordability checks as per usual.
The 95% mortgage will need to be for between 91% and 95% of the value of the property you’re buying. (LTV)
The scheme will start in April 2021 till 31st December 2022. Like other schemes this will be reviewed before the end date.
Which lenders will be offering 95% mortgages?
There are approximately six major banks that have signed up to offer this scheme currently. They will all launch the 95% mortgage from April.
There are other lenders that are lurking in the background that are looking to follow suit shortly.
Under the scheme, the participating lenders will need to offer a five-year fixed rate mortgage as part of their range. This will give borrowers the security of affordable and predictable repayments for longer.
There has been talk that some lenders that haven’t signed up are releasing 95% mortgages before the scheme starts. Some are starting to offer their 95% mortgages from Wednesday 17th which is way before the government scheme is launching. Unlike the government scheme each lender will have different criteria to adhere to. There will be many reasons these lenders are choosing not to be a part of the scheme, but they all have their customers interests at heart.
What rates can we expect with 95% mortgages?
As lenders launch their deals, we will get a better view on how affordable the rates will be. Interest rates on 90% mortgages are currently considerably higher than they were before the start of the pandemic, and it remains to be seen whether the influx of 95% deals will push costs down for first-time buyers.
Can you use the Stamp Duty holiday AND 95% mortgages together?
The Chancellor has announced that the stamp duty holiday will continue until 30 June 2021. After that, the point at which you start paying stamp duty will be reduced to £250,000 – double the normal level – until the end of September. From October, stamp duty will return to normal, with the point at which you start paying set at £125,000.
With the 95% mortgage scheme starts in April, there is no reason that you can’t take action on both. There is something that you need to take into consideration. Mortgages can take some time to unfold so be aware of timelines and cut off dates.
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