The return of the 5% loan to value mortgage product will be welcomed by the first time buyer sector who, up until now, have been limited by lenders minimum loan to value percentages ranging from 75% – 90%, depending on employment situations. As we have seen those who are self employed finding it even tougher with vastly more restrictive lender criteria.
Since the onset of coronavirus, 95% mortgages have all but disappeared from the market – leaving many potential homeowners stranded. This scheme is therefore designed to encourage more lenders to re-enter the 95% market.
What will the new scheme look like?
95% loan to value mortgage products will be introduced from next month and run until December 2022. First time buyers, home movers and previous home owners will all be eligible to apply for the new scheme.
- The 95% mortgage will operate as any standard mortgage would for the buyer.
- For the mortgage lender however, the scheme guarantees that the Government will shoulder some of the cost if the lender lost money, for example if the borrower failed to keep up with mortgage payments and the property was repossessed, but the subsequent property sale did not recoup the outstanding mortgage amount.
The scheme is similar to the 5% Help to Buy Government-backed mortgage scheme, which operated between 2013 and 2017. Any lender that is taking part in the scheme will have to offer a five-year fixed mortgage as part of their range of 95% LTV products.
Who can take advantage of the new scheme?
Any buyer with a 5% deposit can apply for one of these Government-backed mortgages. They are NOT restricted to first-time buyers. Indeed anyone may apply who is buying a main home, including previous homeowners and home movers.
Simplified eligibility criteria:
- You must be buying a main residential home in the UK. These mortgages can NOT be used for second homes or buy-to-let properties.
- The property must be worth £600,000 or less. You will only be able to apply if the property is below this figure.
- You must have a deposit equivalent to between 5% and 9% of the property’s purchase price.
- You must apply for a capital repayment mortgage. There will be NO options for interest only within the scheme.
- You will need to pass a lender’s normal mortgage affordability criteria.
What will the rates look like?
Details about what kind of mortgage rates you can get with these 95% mortgages are yet to be published. Remember, the lower your LTV, the better the rate.
Are these products good?
The reason behind this scheme is to encourage lenders to re-enter the 95% loan to value market. Many lenders offered 95% products prior to the pandemic and most withdrew for high loan to value exposure completely relatively fast.
The interest rates are not likely to be the most competitive we have seen before but will allow buyers with limited deposit funds to buy a property. Whether a 95% loan to value mortgage product is right for you though will depend on your individual circumstances and is best discussed with a mortgage advisor. Remember, if you can put down a 10% deposit then you will get access to a cheaper mortgage.
Which lenders will be offering these products?
Currently the lenders signed up to offer the new scheme are limited but are all big names within the industry who borrowers will already know. Lloyds, Natwest, Santander, Barclays and HSBC will offer these mortgages from April. Other lenders are expected to follow.
As always it is best to speak to a qualified Independent Mortgage Broker to discuss your options fully