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95% mortgages return with a new mortgage guarantee scheme

As part of the budget announcement earlier this week, Chancellor of the Exchequer Rishi Sunak unveiled a new mortgage guarantee scheme which will encourage lenders to offer 95% mortgages. Announced alongside an extension to the Stamp Duty Holiday, the mortgage guarantee scheme is yet further support to home buyers and stimulation for the property market.

The mortgage guarantee scheme is designed to encourage mortgage lenders to offer higher loan to value (LTV) mortgages which will enable buyers to get on the property ladder with a much smaller deposit. Saving a deposit of 15% or 20% is perhaps the most significant barrier for potential homebuyers to get on the property ladder. As a result of the coronavirus pandemic, the availability of higher LTV mortgages has significantly reduced as lenders have retreated to more cautious lending positions.

The 95% mortgages will be available on new build and existing homes, on repayment mortgages not interest-only mortgages, and on properties up to the value of £600,000. They will not only help first-time buyers but also existing homeowners with low levels of equity in their existing property who are looking climb onto the next rung of the property ladder. A similar scheme was launched in 2013 in response to a shortage of higher loan to value mortgage products as a result of the 2008 financial crisis. The scheme proved incredibly successful and enabled over 100,000 homebuyers to purchase their own home.

What does the deposit on a 95% mortgage look like? According to Rightmove statistics, the average price of a property in GU9 last year was £540,000. A deposit on a £540,000 property would be £27,000. Meanwhile, properties in GU11 had an average price of £315,000. With the new 95% mortgages afforded by the mortgage guarantee scheme, the deposit on a £315,000 property would be just £15,750.

This is further good news for buyers and sellers alike, with more buyers expected to come to the market. If you’re thinking about moving, now is the time to buy and sell property! Get in contact with your local ME Estate Agents office today to get a FREE valuation of your property.