In his Budget speech this week, Chancellor Rishi Sunak announced that the government will introduce a new mortgage guarantee scheme.
The scheme aims to help people who can’t afford to save a large deposit buy a home by incentivising lenders to offer 95% mortgages.
The Treasury said these sorts of mortgages had “virtually disappeared” over the past year due to the effect of the COVID-19 pandemic on the economy, preventing many prospective homebuyers from getting onto the property ladder.
The new scheme means people with only a 5% deposit will potentially be able to buy a property worth up to £600,000, provided certain income requirements and other checks are met.
The Chancellor said several of the country’s largest lenders have already signed up to the scheme, including Lloyds, NatWest, Santander, Barclays and HSBC.
These will be offering 95% mortgages from April 2021, with the Chancellor saying he expects more to follow shortly after.
First-time buyers are expected to benefit from the scheme, with the government saying that saving for a sufficient deposit remains the biggest hurdle for most when it comes to buying a home.
According to property portal Rightmove, the average national asking price for a first-time buyer property is £200,692 (February 2021). On a property worth this amount, a 5% deposit would work out as £10,035.
Meanwhile, existing homeowners with low levels of equity in their property who are struggling to move or re-mortgage onto a more competitive offer could benefit too.
The government says it hopes the new scheme will help these “frustrated homeowners” climb onto the next rung of the property ladder.
The scheme will initially be open for new mortgage applications from April 2021 to December 2022.
For a mortgage to be eligible for the scheme, it will need to:
In addition to the mortgage guarantee scheme, the Chancellor also announced an extension to the stamp duty holiday that was brought in last year.
Anyone buying a property up to £500,000 will now not pay the tax until 30 June 2021.
After this, the price at which tax is charged will fall to £250,000 until the end of September, with the usual level of £125,000 returning from 1 October.