Mortgage guarantee with a 5% deposit

March 04, 2021

Following yesterday’s Spring Budget announcement, there’s good news in store for anyone looking to move who have been challenged with finding a 15% or 20% deposit over the past year or so. From April, a new government scheme will allow buyers to use just a 5% deposit.

Chancellor Rishi Sunak has introduced a mortgage guarantee scheme that is not restricted to first-time buyers but is also available to existing homeowners.

From April, buyers, both first-time and those that already own a home, will be able to buy a property up to the value of £600,000 with a 5% deposit, making 75% of our current homes for sale eligible to purchase using this new scheme.

The government pledges to repay participating lenders some of their losses if a buyer defaults on their mortgage payments, literally guaranteeing the mortgage.

To receive this pledge, lenders have to provide mortgages up to 95% of the property’s value, to allow the purchaser to place just a 5% deposit.

Promisingly, many of the High Street banks have already signed up to participate, including Santander, Lloyds, Barclays, and HSBC.

Unlike the Help to Buy scheme, there is no loan provided in the purchase, so the usual affordability checks will still apply. This means that buyers wishing to use the mortgage guarantee scheme will still need to prove that they can afford repayments on the 95% mortgage.

One of our trusted financial advisers, Andrew Fagg of Davenport Financial Management has shared his opinion on this new update. “For the past year, we’ve seen some real turbulence in the market for first time lending and the availability of high loan to value products, this new scheme will provide first time buyers in particular, and those requiring a higher loan to value to step up the ladder, with a bit of much-needed certainty and flexibility. It will be a welcome return to the mortgage market and will help many who have already saved a smaller deposit to take that step having been excluded for so long.”

If you’re looking for a mortgage to suit your needs, we’d be very happy to put you in touch with one of our partners who can offer an informal, over-the-phone chat to discuss your needs and requirements.

If you’d like us to help, simply contact your local branch and we can pass you on to a trusted advisor.

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