There is good news for first-time buyers and low deposit borrowers alike as Rishi Sunak announced the return of 95% mortgages for borrowers on properties up to the value of £500,000, writes Bob Little & Co’s mortgage expert MATTHEW GRAYSON…
What do we know so far?
The scheme will operate in a similar manner to the previous Help to Buy scheme, which operated from 2013 to 2016.
The government will essentially stand as a guarantor for your loan. If your home is repossessed and the lender doesn’t get back the outstanding mortgage, the government will make up the shortfall.
This is not a direct benefit to you as a borrower, but it means lenders are more comfortable lending on low deposit mortgages. This results in more options for potential borrowers.
The scheme will be available to both first-time buyers and home movers.
Why do mortgage lenders like bigger deposits?
A mortgage lender’s ultimate fear is having to repossess a property. This can happen if you are unable to meet your mortgage payments and the bank has exhausted all other options.
When a bank repossesses a property it will try to sell it as quickly as possible. Repossessed properties are often sold for less than true market value.
This is not an issue if the outstanding mortgage is £100,000 and the property is worth £200,000, because the bank is highly likely to get its money back. However, if the mortgage is £100,000 and the property is worth £105,000, there is a good chance the bank won’t recoup the money it loaned.
When will the scheme be available?
There are already noises that major high street banks will be able to launch products next month (April 2021) with the likelihood of lending options increasing thereafter.
At this stage, no details have been released with regards to lending criteria and we do not know if lenders will be carrying out additional checks on 95% of mortgage applications.
How long will the scheme last?
There has been no end date announced for the scheme yet.
Should I wait until the products are available to speak to an adviser about eligibility?
This decision is yours, but it is never too early to speak to an adviser. The sooner your adviser has all your details the quicker they will be able to give you accurate information as lenders products start to come to market.