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A new government mortgage scheme is now in place that will help first time buyers get on the property ladder with just a 5% deposit. The new scheme hopes to provide a more affordable path to home ownership with a 5% deposit on houses of up to £600,000 and is part of a range of options to make ownership a possibility.
First announced at the Budget in March and partially in response to the Covid-19 pandemic, the government plans to offer the guarantee needed to lenders to cover the other 95%. While demand for home-ownership has soared during lockdown according to the government, many first-time buyers or those who only have lower deposits saved have increasingly struggled to get on the property ladder after many of the big lenders removed their 5% and 10% deposit mortgages at the start of the pandemic last year.
This is a temporary scheme, being open for new mortgage applications from April 2021 to December 2022 and the government guarantee will be valid for up to 7 years after the mortgage is approved. The government is also offering a partial guarantee of approximately 15% that will compensate lenders should the borrower default on any repayments.
Many lenders including Natwest, HSBC, Lloyds, Santander and Barclays have already started to offer products and Virgin Money will start offering products in May, the first time that large banks have offered 5% deposit mortgages since May 2020.
Rishi Sunak, Chancellor of the Exchequer, said:
“Every new homeowner and mover supports jobs right across the housing sector, but saving for a big enough deposit can be hard, especially for first time buyers.
By giving lenders the option of a government guarantee on 95% mortgages, many more products will become available, boosting the sector, creating new jobs and helping people achieve their dream of owning their own home.”
However, those who have lower incomes, people who have received sporadic income due to the pandemic or individuals who are planning to purchase a property alone may still struggle to secure a mortgage and many of the 5% mortgages that are available will not be available to many who wish to purchase a new-build property.
Participants won’t have to pay to join the mortgage scheme, but the interest rate charged on mortgage products is still set at the discretion of each lender and borrowers can still only borrow up to 4.5 times their annual income. The 5% deposit scheme is subject to the usual affordability checks.
For those looking to get on the property ladder soon, stamp duty has also been extended until June 30th. The nil band rate will then be set until the 30th September at £250,000 and will then return to £125,000.
For more information on the 5% Government Mortgage Guarantee Scheme visit here: mortgage guarantee scheme.