The government recently unveiled a new mortgage guarantee scheme in the Spring Budget, which could be great news for many first time buyers.

We spoke with Brian Murphy, head of lending at Mortgage Advice Bureau (MAB), the UK’s leading mortgage intermediary brand with over 1,500 expert mortgage and protection advisers.

What is a 95% mortgage?

If you’ve been trying to buy your next home but haven’t yet saved up a big enough deposit, you could be eligible to apply for a 95% loan to value (LTV) mortgage. This means that you may be able to buy a home with just a 5% deposit.

What are they?

First things first - a 95% mortgage is a type of mortgage that allows you to borrow 95% of the property price from a lender. The remaining 5% is covered through your deposit.

How are these mortgages now available?

The UK Government will be introducing a new scheme to incentivise lenders to reintroduce 95% mortgage deals from April 2021. These types of mortgages have been available previously but the number of 95% mortgage products has largely decreased during the pandemic.

The new mortgage guarantee scheme will see the UK Government act as a safety net for lenders. In the worst case scenario, if or where the property is repossessed and sold at a loss, the Government will take on some of the losses incurred by the lender. In return, lenders will have greater incentive to offer 95% mortgage products to people looking to buy a new home, as they’ll carry less risk.

What do I need to know?

There’s a few things you should know about the new scheme:

  • It will launch in April 2021 (expected around mid-April but we await further details)
  • You can purchase properties up to £600,000 with a 5% deposit
  • It’s open to all homebuyers (not just first time buyers)
  • Normal mortgage affordability checks will still be in place
  • Although we do not yet know any product specific details, the government has confirmed many of the main high street lenders will be offering 95% mortgages including Lloyds, NatWest, Santander, Barclays and HSBC, with Virgin Money and others expected to follow

Can I now get a mortgage?

You might have guessed it, but this all depends on your individual circumstances and affordability, which can be assessed by an expert mortgage adviser. However, as you now only require a 5% deposit for a 95% LTV mortgage, many prospective homebuyers could find they have enough to buy their first property.

For example, let’s say you were aiming to buy a home for £200,000 through a 90% LTV mortgage. Your deposit would have been £20,000.

With a 95% LTV mortgage, your deposit could be as low as £10,000. You could even use savings from a Lifetime ISA to put towards your deposit.

Would you like to find out whether a 95% mortgage product is right for you? Arrange a call with one of MAB’s expert mortgage advisers to discuss your options, here.

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