Government’s low-deposit mortgage scheme gets under way

The Government scheme is being made available to lenders from today

(PA)

Aspiring homeowners seeking deposits as low as 5 per cent will find more deals available from today, as a new UKGovernment-backed mortgage scheme gets under way.

Lloyds, Santander, Barclays HSBC UK and NatWest will be among the first to launch mortgages under the scheme, with Virgin Money following next month.

The scheme, unveiled in the Budget earlier this year, is being made available to lenders from Monday.

It comes after the number of low deposit mortgages on the market shrank dramatically in the early days of the coronavirus pandemic, as lenders became much more cautious about offering “riskier” loans in the tough economy.

The new initiative will tackle this by helping first-time buyers or current home owners secure a mortgage with just a 5 per cent deposit to buy a house for up to £600,000.

It will work by offering lenders the guarantee they need to provide mortgages that cover the other 95 per cent, subject to the usual affordability checks.

The UK Government said that when asked,  69 per cent of private renters who had looked into a mortgage said they could not find many deals with a low deposit.

The Chancellor @RishiSunak explains how the new mortgage guarantee scheme will turn generation rent into generation buy. #PlanForJobs #Budget2021 pic.twitter.com/IlBKcaK7bV

— HM Treasury (@hmtreasury) March 3, 2021

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

“That’s why we are determined to do everything we can to help hard-working families and prospective first-time buyers get their feet on the housing ladder in an easy and affordable way, to level up this country.

“The new mortgage guarantee scheme which comes into effect today will give providers the confidence to lend and help families and young people get on the property ladder without the prohibitive burden of a large deposit.”

He added: “Together we can turn Generation Rent into Generation Buy.”

The mortgage guarantee scheme will encourage lenders to offer 95% mortgages, making home ownership more accessible to those with a smaller deposit.#PlanForJobs #Budget2021 pic.twitter.com/YKofpwp6yf

— HM Treasury (@hmtreasury) March 3, 2021

In general, the scheme, which will be open for applications until December 31, 2022, can be used for new or existing properties.

Lenders will be able to purchase a Government guarantee that would compensate them for a portion of their losses in the event of a repossession.

The guarantee will be valid for up to seven years after the mortgage is originated.

The new scheme will mirror a “tried and tested” initiative which reinvigorated the mortgage market in the recent past.

In 2013, the Government launched the Help to Buy mortgage guarantee scheme in response to a similar shortage of low-deposit mortgages following the 2008 financial crisis.

That initiative helped more than 100,000 households to buy their own home across the UK.

The previous Help to Buy scheme also had the effect of boosting competition in the 5 per cent deposit bracket among lenders who were not part of the scheme.

They ramped up their low-deposit ranges in order to compete with lenders taking part in the initiative.

By giving lenders the option of a Government guarantee on 95 per cent mortgages, many more products will become available, boosting the sector, creating new jobs and helping people achieve their dream of owning their own home

Chancellor Rishi Sunak

Chancellor Rishi Sunak said: “Every new home owner and mover supports jobs right across the housing sector, but saving for a big enough deposit can be hard, especially for first-time buyers.

“By giving lenders the option of a Government guarantee on 95 per cent mortgages, many more products will become available, boosting the sector, creating new jobs and helping people achieve their dream of owning their own home.”

The new scheme has been launched at a time when house sellers are demanding record sums for properties.

Rightmove said Monday that average seller asking prices hit a new record high of £327,797 in April, after jumping by £6,733 or 2.1 per cent month on month.

It is great that this scheme will make a real difference in enabling first-time buyers who didn’t think they would have a chance of getting a mortgage and home movers to get the keys to their new home

Michelle Andrews, HSBC UK

According to financial information website Moneyfacts, 5 per cent deposit deals have already started to make a return to the market in recent weeks, outside the scheme.

Moneyfacts recently counted 34 deals for borrowers with a 5 per cent deposit available in April, down from just five in March.

This is still a long way away from the situation a year ago, when more than 160 deals for borrowers with 5 per cent deposits were available.

Miguel Sard, managing director of home buying and ownership at NatWest said: “A Government-backed scheme will help segments of the market for whom home ownership has felt far out of reach in recent months.”

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