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Mortgage lenders gearing up to unleash wave of 5% deposit deals on to market

Vicky Shaw, PA Personal Finance Correspondent
·3-min read

Mortgage lenders are gearing up to launch a wave of ultra-low deposit deals on to the market.

Several big high street names have already confirmed their intention to take part in a new UK Government-backed 5% deposit scheme, which was unveiled in the recent Budget.

Lenders who are jumping on board the new scheme include Lloyds, NatWest, Santander, Barclays, HSBC UK and Virgin Money.

Some lenders are expected to reveal further details about what they will have to offer in the coming days.

The new mortgage guarantee scheme aims to increase the appetite of lenders across the UK for high loan-to-value lending (LTV) to creditworthy customers.

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It will be available to current home-owners as well as first-time buyers looking for a property for up to £600,000. Borrowers will still need to pass the usual affordability checks.

In general, the scheme can be used for new or existing properties.

It will be open for applications from later this month until December 31 2022.

The initiative will work by allowing lenders to purchase a Government guarantee that would compensate them for a portion of their losses in the event of foreclosure.

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% 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.

Lloyds Banking Group confirmed that its new deals will be available across its brands, Lloyds Bank, Bank of Scotland, and direct from Halifax, as well as through Halifax Intermediaries.

Two-year and five-year product options will be made available, it told the PA news agency.

A Santander spokeswoman said: “We’re pleased to be supporting the Government’s 95% mortgage guarantee scheme and look forward to sharing full details of the products available shortly.”

A spokesman for Virgin Money said: “We’re pleased to say that we will be an active participant in the Government’s mortgage guarantee scheme and we are due to announce our proposition next month.

“The products available will be Virgin Money only and full details will be announced at launch.”

Many low-deposit mortgages disappeared from the market in the early days of the coronavirus pandemic, as lenders became concerned about the potential for these borrowers to end up in negative equity – owing more for their property than it was worth – should house prices fall in the tough economy.

However, in recent months, house prices have been hitting record highs.

Lenders’ confidence is also showing tentative signs of returning.

According to financial information website Moneyfacts, 5% 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% 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% deposits were available.

Britain’s biggest building society, Nationwide, said it is exploring opportunities to fully return to 95% LTV lending in the coming months.