More lenders are beginning to offer 95% LTV mortgages thanks to the introduction of the mortgage guarantee scheme. It helps buyers purchase a home a 5% deposit.
What is the mortgage guarantee scheme?
From April, first-time buyers and homebuyers looking to purchase a house up to £600,000 will need a deposit of just 5% if eligible under the scheme. This is known as a 95% LTV (or Loan To Value) mortgage.
Under the programme, the government guarantees lenders a portion of the mortgage over 80%. This means the Treasury promises the lender it will receive 15% of the mortgage should the homeowner default with a 95% LTV mortgage.
The measures have been brought in to reduce the risk for mortgage lenders. Many providers withdrew this type of mortgage at the start of the pandemic due to several concerns, including rising unemployment.
Is it only open to first-time buyers?
The short answer is no! While first-time buyers often struggle to find a large deposit for their first mortgage, homeowners might also need to consider 95% LTV mortgages. According to some reports, since lockdown areas outside of main cities and towns have seen house prices increase by up to £100,000. This may mean some current homeowners will have a smaller deposit.
To be eligible for the scheme, you will need to be buying a property to ‘live in’. That means second homes and buy-to-let properties are not eligible.
You will need to apply for a repayment mortgage (this scheme does not allow interest-only loans) andpass affordability checks. These include loan-to-income test and credit score ratings.
Does the scheme include new-build?
The mortgage guarantee scheme includes both existing properties and new-build.
Is this scheme like Help to Buy?
The Help to Buy (HTB) guarantee scheme ran from 2013 to 2016 and was very similar to the latest version. It only applied for 90% LTV mortgages.
When will the scheme end?
The new 95% LTV mortgage guarantee scheme runs from April 2021 to December 2022. However, this is being reviewed before the end date, so it could be closed earlier or extended.
What are the interest rates on the mortgages?
At the moment, lenders have not released details of their interest rates. Remember, that interest rates on 95% LTV mortgages are higher than those where you pay a larger deposit.
Each lender will offer different interest rates, so you will need to speak to one of our team for details of the latest rates.
Your home may be repossessed if you do not keep up repayments on your mortgage