Government backed 95% LTV Mortgages – How does it all work?

Great News for First Time Buyers!

Back in March the Chancellor of the Exchequer announced a plan in the budget to help first time buyers and home movers secure a mortgage with just a 5% deposit. The New Government backed mortgage scheme was aimed at helping secure a place on the property ladder without the need for the large deposits we have become accustomed to over the past few years.

Post the financial crisis of 2008 and especially over the past 12 months during the Covid19 pandemic, we have seen tighter mortgage lending criteria and although there is still a healthy choice within this marketplace, many of the higher loan to value products have slowly been withdrawn. The choices faced by first time buyers and some home movers looking to scale the property ladder has been limited, with familiar stories of moving back home to save or opting to head into the lettings market just to put a roof above their heads.The Chancellor has very publicly announced that he is looking to create a new culture of “Generation Buy” rather than “Generation Rent”.

So… what’s new and how does the scheme work?

Essentially the Government is committed to supporting people who aspire to become homeowners. Statistics show that over 685,000 households have been able to purchase a home since 2010 through other government backed schemes including Help to Buy and Right to Buy. The Mortgage Guarantee Scheme is intended to continue this support for the next generation of home buyers.
The UK Government will provide lenders with options to purchase a guarantee, this effectively offers lenders a get out of jail free card for the top % of borrowing. In simple terms, the government will compensate the mortgage lender for a portion of net losses in the event of defaulted loans or repossession.

What does this mean for you?,

This great news for both First Time Buyers and home movers alike. Major lenders have already announced new products and there is certainly a good level of choice with competitive rates across many terms. Familiar names including Natwest, Lloyds, Halifax, Santander and HSBC have all signed up to the scheme with many more expected to do so over the coming weeks and months. One of the key areas is to make this area of the market competitive again, this should be great news for consumers as mortgage lenders will be looking to capitalise on the demand without having to take all the risk. However, with all good things, there will be some limitations. For example: there will be a cap at £600,000 so any property purchased over this amount will not qualify and some lenders will not offer the facility on New Build homes. The scheme is intended as a temporary measure. It will be open for new mortgage applications from April 2021 to December 2022, in line with the government’s view that the current scarcity of high loan-to-value lending is primarily a response to the pandemic rather than a symptom of a longer-term structural change in the mortgage market.

We wanted to take a look at the situation in real terms and what it means financially to someone looking to take their first steps into property ownership.
Let’s take a look at a typical first-time purchase. Here we have a property in the popular Highwood development of town.
Property Details: Harpers Lodge, Arundale Walk, Horsham
1 Bedroom, 1 Bathroom, 1 Reception Room


Find out more

*Financial Example:
Supplied by Nepcote Financial
68 Broadwater Street West, Worthing, BN14 9DE

3.73% 2-year fixed rate with a £999 arrangement fee and a £200 basic survey fee
Lender – Halifax
Assumed Purchase Price of £210,000
5 % Deposit of £10,500
Mortgage of £199,500
Based on a 30 year repayment term = mortgage repayments of £920.90 per month

*Source – Mortgage brain 21.04.21 on a repayment basis – all quoted information is subject to your status and availability and therefore not guaranteed.
Your home maybe repossessed if you do not keep up repayments on your mortgage.

In our opinion:

It is great news that the Government and the markets are looking to ease the struggles that FTB have. With property prices on the rise and a shortage of affordable housing, any help is welcome. This should also aid those looking to move into larger family homes too. Deposits have been an issue for a number of years and there has been huge help from the bank of Mum & Dad over the past. Hopefully these new products should make saving for your first home or stepping up the ladder a little bit easier.
For further information or to discuss your situation in more detail, please feel free to give us a call on 01403 252222.

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