Property News – 95% Mortgages Available Again New Government Guarantee Scheme Launched Today

Property News – 95% Mortgages Available Again New Government Guarantee Scheme Launched Today

The UK government has announced the launch of a new 95% mortgage scheme.

  • 95% mortgage guarantee launches today, available on high streets across the country
  • Scheme part of a range of ownership options to help make home ownership a reality
  • New figures show demand for home ownership has soared during lockdown, with nearly 80% of private renters now saving for a deposit

A new government-backed mortgage guarantee scheme, announced in the March Budget, to help people with 5% deposits get on to the housing ladder will be available to lenders from today 19 April 2021, a spokesperson confirmed.

The scheme will help BOTH first time buyers AND current homeowners obtain a mortgage with a 5% deposit to buy a house of up to £600,000 – offering a route to home ownership to those with low deposits.

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The government is essentially giving lenders the guarantee they need to provide mortgages that cover the other 95%, subject to the usual affordability checks. In the past, insurance companies provided this guarantee for a premium.

The scheme is now available from major high street lenders across the country today, including Lloyds, Santander, Barclays, HSBC and NatWest and Virgin Money following next month.

In 2019, the government made a pledge to build 300,000 new and attractive homes a year with an investment of over £12 billion in affordable housing over the next 5 years – the largest investment in a decade.

Since 2010, more than 687,000 households have been helped into home ownership through government schemes, but when asked, 69% of private renters and 63% of those living at home who had looked into a mortgage said they cannot find many mortgages with a low deposit.

The guarantee scheme is one of a range of flexible home ownership options available including:

  • Help to Buy
  • Shared Ownership
  • First Homes Scheme.

Figures show that the number of mortgage approvals for house purchases in January 2021 was 99,000 – a 40% increase on January 2020.

The government has helped over 685,000 households to purchase a home since 2010 through government backed schemes including Help to Buy and Right to Buy.

Taxpayers will bail out banks if loans default and they lose money

The higher the loan-to-value, the higher the risk for lenders, as borrowers have less skin in the game and can walk away in the event of a property crash or negative equity.

The mortgage guarantee scheme provides lenders with the option to purchase a guarantee on the top-slice of the mortgage, which means the government will compensate the mortgage lender for a portion of any net losses incurred in the event of repossession. In other words, the guarantee applies down to 80% of the purchase value of the guaranteed property.

The guarantee will be valid for up to 7 years after the mortgage has started and evidence shows that loans are unlikely to default after this time.

However, the scheme is intended as a temporary measure and will be open for new mortgage applications from April 2021 to December 2022.

Lenders can still pursue you for losses after you have been repossessed if they do not get their money back on a ‘forced sale’ – usually at auction.

The government said the current scarcity of high loan-to-value lending is a response to the pandemic rather than a symptom of a longer-term structural change in the mortgage market.

The government will review the scheme towards the planned end date to determine whether extending the period of eligibility for new mortgages would continue to deliver benefits for prospective buyers.

The stamp duty holiday comes to an end in June, prompting fears of a slowdown in the property market. The new guarantee scheme could push prices to new record highs making it more difficult for first-time-buyers to get on the property ladder.

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