New 95% mortgage scheme officially launches – What should sellers know?

Below, we analyse what we know about the scheme now that it’s launched and how sellers could potentially benefit from it.

A scheme to help people on or up the ladder

The government-backed mortgage scheme officially launched on April 19 2021 to help borrowers get onto the housing ladder – or rise up it – with only a 5% deposit.

The scheme will help first-time buyers or current homeowners secure a mortgage with just a 5% deposit, the government insists, on homes worth up to £600,000. This, it adds, will help to provide ‘an affordable route to home ownership for aspiring home-owners’.

Low-deposit mortgages pretty much fell off a cliff during the pandemic, as lenders understandably became far more risk-averse, but the government is now aiming to encourage more lenders to offer these types of mortgages by offering them a guarantee against their lending. This will enable them to provide mortgages to cover the other 95%, without worrying about it being high-risk.

On high streets up and down the country, the scheme is now available through some of the UK’s biggest and most high-profile lenders. Lloyds, Santander, Barclays, HSBC and NatWest have all signed up and are now offering mortgages under the scheme, with Virgin Money expected to follow next month. Others may follow over the coming months if they see the scheme is a success.

Housing Secretary Robert Jenrick said of the launch: “For too many people, no matter how hard they work, home ownership can seem out of reach. One of the biggest divides in our country has been between those who can afford their own home and those who cannot. That’s why we are determined to do everything we can to help hard-working families and prospective first-time buyers get their feet on the housing ladder in an easy and affordable way, to level up this country.”

He insisted the new mortgage guarantee scheme now in place will give lenders ‘the confidence to lend’ and ‘help families and young people get on the property ladder without the prohibitive burden of a large deposit’. In line with the government’s slogan on housing, he said that together we can turn ‘Generation Rent’ into ‘Generation Buy’.

Sunak added: “Every new homeowner and mover supports jobs right across the housing sector, but saving for a big enough deposit can be hard, especially for first-time buyers.”

“By giving lenders the option of a government guarantee on 95% mortgages, many more products will become available, boosting the sector, creating new jobs and helping people achieve their dream of owning their own home.”

The move was welcomed by the banks and building societies offering the scheme. Miguel Sard, managing director of home buying and ownership at NatWest, said the government’s new mortgage guarantee scheme would offer further support to those with smaller deposits.

He commented: “For those customers, particularly younger or first-time buyers, saving up for a big deposit can often be difficult, and we know people in these groups are some of the hardest-hit by the effects of the pandemic. A government-backed scheme will help segments of the market for whom home ownership has felt far out of reach in recent months.”

Mark Hayward, chief policy advisor at trade body Propertymark, said there has been an increase over the past few months in the number of prospective buyers and the number of house sales taking place, and that the mortgage guarantee scheme – coupled with the extension of the stamp duty holiday – will provide extra options for more people to become homeowners.

“Access to finance and affordability plays a key role in the ability for people to purchase their dream home, so we are now very pleased to see further support for both first-time buyers and current homeowners looking to buy property or move up the housing ladder,” he said.

A necessary intervention?

The government says the introduction of the scheme arrives at a time when new figures it recently published show a huge rise in the desire for home ownership and a sharp decline in 95% mortgage availability over the past year, driven by the pandemic.

The research found that over two-thirds of private renters (68%) and those living at home (72%) want to purchase, with the majority saying that the pandemic has made them more aware of the importance and benefits of home ownership.

In addition, the survey showed that some 76% of private renters and 70% of those living at home have begun saving for a deposit or have put more money into their savings during the Covid crisis.

The new scheme has faced criticism from some quarters, with some arguing that 95% mortgages don’t actually improve affordability or the ability of people to get on the ladder if house prices remain prohibitively high. For example, the ONS House Price Index for February 2021 showed that average house prices in the UK rose by 8.6% in the 12 months from February 2020, up from 8% in January 2021 - the highest annual growth rate since October 2014.

Meanwhile, research by FinTech firm thinkmoney revealed that would-be homeowners still need to save £15,400 for a 5% deposit, with deposit and additional costs added in.

According to the ONS, the average price of a home in England at present is £267,000, with a 5% deposit for said home amounting to £13,350. When additional expenses are factored in (including surveys, conveyancing and mortgage broker fees), buyers will need to find an extra £2,050 on average. Even with significant stamp duty savings for most at present, getting enough money for a 5% deposit could remain out of reach for many.

Affordability is likely to remain an issue for many, and could serve to put some buyers off, even with various incentives at play. That said, sellers will be reassured by the high demand that is currently being seen and the strong levels of house price growth, which means it remains a good time to sell.

Sellers – How might the scheme help you?

As mentioned above, demand is at record high levels thanks to the stamp duty holiday, changed priorities, the easing of lockdown, strong borrowing conditions and schemes like the 95% mortgage guarantee initiative.

The scheme is more relevant to sellers because it is aimed at all buyers and isn’t only restricted to new-build homes – as is the case with some other government schemes. Consequently, as the mortgage scheme rolls out, sellers are likely to benefit from increased demand.

While the government has said that the scheme will be time-limited – remaining open until December 31 2022 – it has also suggested that the scheme will be evaluated closer to its proposed end date and may be extended if the need is still there for it.

Here at Balgores Property Group, we can help you to make the most of the increased demand as a result of the 95% mortgage guarantee scheme. We operate in Essex, East London and parts of Kent.

For further guidance on any part of the sales process, please get in touch with our expert team today. You can also get a free and instant online valuation to see how much your home could be worth in the current marketplace.