Low-Deposit Mortgage is Launched by Government – What Home Buyers Need to Know

As part of the 2021 budget, the government has launched a new scheme to allow home buyers deposits as low as 5%, to boost the supply of low-deposit home loans.

The Mortgage Guarantee Scheme allows for people with only a 5% deposit to acquire a mortgage for 95% of the property’s value, subject to the usual affordability checks. It will be open for applications until December 31st, 2022 and can be used for new or existing properties. Mortgage lenders such as Halifax, HSBC, Barclays, NatWest, and Santander are among some of the firms offering the government-backed loans for properties up to £600,000.

The Government launched a Help to Buy scheme in response to a similar shortage of low-deposit mortgages, following the 2008 financial crisis. That initiative assisted over 100,000 households to buy their own home across the UK. The previous Help to Buy scheme also had the same effect of boosting competition in the 5% deposit bracket among lenders who were not a part of the scheme. As a result, they have ramped up their low-deposit ranges to compete with lenders taking part in the initiative.

Housing Secretary, Robert Jenrick said that “for too many people, no matter how hard they work, home ownership can seem out of reach. One of biggest divides in our country has been between those who can afford their own home and those who cannot.”

Chris Birds, Partner at Boxall Brown & Jones also commented “after such a turbulent year, it is exciting to see that this scheme will enable first-time buyers who did not think they would have a chance of getting a mortgage and home movers to get receive the keys to their new home”.

Anthony Lomas, Partner at Boxall Brown & Jones added that this is “a very welcome scheme specifically for first time buyers, a 5% deposit represents a far more attainable key to opening up property ownership. I’m also pleased this new version allows for the purchase of resale homes too”.

So, what does this mean for home buyers?

Essentially, this is just like any other 95% mortgage. If you have a 5% deposit, you can get a mortgage covering the remaining 95% of the price.

What is the reason for the scheme?

Due to COVID-19, there has been a surge in demand for home ownership, which has increased house prices. So, due to it being more difficult to get on the property ladder, the scheme offers a lifeline to those hoping to buy their own property.

Who Can Apply for the Scheme?

If you are purchasing a property for less than £600,000 and can pay a 5% deposit, you can use the scheme. You do not have to be a first-time buyer. You will still need to pass the lender’s regular eligibility checks, which shows that you can afford the monthly repayments.

With that in mind, you cannot use this scheme for new-builds, second homes or rental properties. This must be used for the purchase of your main place of residence in the UK.

If you use this scheme, you can only apply for a repayment mortgage, not an interest-only mortgage. This means that you need to pay back the money you borrowed plus interest each month.

How can I Apply for the Scheme?

You can apply for the scheme just like you would a regular mortgage.

  • Firstly, find a mortgage deal you are interested in, you can do this by either doing your own research or by using a mortgage broker.
  • Then you must ensure you have payslips to prove you can afford the monthly repayments. If you are self-employed, please provide a few years’ worth of accounts instead.
  • Finally, make your application. Every lender will have their own process for this.

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