At last month’s Budget, one of the biggest announcements revolved around a very high loan-to-value (LTV) mortgage to help all kinds of buyers – from current homeowners to first-time buyers – to secure a loan with just a 5% deposit.
The 95% mortgage guarantee scheme was heavily trailed in the week or so leading up to Budget day, but had first been mooted by Prime Minister Boris Johnson in his speech to the virtual Tory Party conference in October 2020. At that point it was only going to be for first-time buyers, but at the Budget it was fleshed out to include current homeowners as well.
Here, we take a look at what the scheme is and what the launch could mean for sellers.
An ‘affordable route’ to home ownership
On April 19 2021, the government-backed mortgage scheme was launched to lenders to help people get onto the housing ladder with only a 5% deposit.
According to the government, the scheme will help first-time buyers or current homeowners secure a mortgage with just a 5% deposit to purchase a house worth up to £600,000 – ‘providing an affordable route to home ownership for aspiring home-owners’.
To encourage more lenders to offer low-deposit mortgages – a sector which virtually disappeared during the pandemic as banks and building societies understandably employed a risk-averse approach – the government said it will offer them the guarantee they need to provide mortgages that cover the other 95%, ‘subject to the usual affordability checks’.
By taking away some of the risk of this type of lending, the government is hoping to encourage lenders to offer low-deposit mortgages again.
The scheme is now available to borrowers on high streets across the country. Major lenders such as Lloyds, Santander, Barclays, HSBC and NatWest are already on board and offering the mortgages under the scheme, while Virgin Money is expected to follow next month.
“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,” Housing Secretary Robert Jenrick said.
“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 said the new mortgage guarantee scheme now in place will give providers ‘the confidence to lend and help families and young people get on the property ladder without the prohibitive burden of a large deposit’. He added, in a popular refrain of a government slogan, that together we can turn ‘Generation Rent’ into ‘Generation Buy’.
Chancellor Rishi Sunak, who first announced the proposals, said: “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.”
Miguel Sard, managing director of home buying and ownership at NatWest, said the bank welcomed the government’s new mortgage guarantee scheme to give further support to those with smaller deposits.
“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,” he added.
Mark Hayward, chief policy advisor at trade body Propertymark, said: “Over the past few months, there has been an increase in the number of prospective buyers and the number of house sales taking place. Coupled with the decision to extend the stamp duty holiday further, the Mortgage Guarantee Scheme will provide additional options for more people to become homeowners.”
He added: “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.”
The government says its intervention comes as its latest figures show a greatly increased desire for home ownership and a sharp fall in 95% mortgage availability over the past year.
The data shows that more than two-thirds of private renters (68%) and those living at home (72%) want to buy, with the majority saying the pandemic has made them more aware of the importance and benefits of home ownership – given the security and extra space this typically provides, as well as potential garden space.
What’s more, the survey revealed that 76% of private renters and 70% of those living at home have started saving for a deposit or put more money into their savings during the pandemic.
The government also said the scheme will help to support the housing market and protect jobs and businesses across the housing supply chain, from housebuilders and estate agents, to tradespeople, DIY stores and removal firms, by encouraging more people to buy.
Some have criticised the proposals, saying that 95% mortgages don’t actually improve affordability if prices are still really high. According to research by thinkmoney, aspiring homeowners will still need to save £15,400 for a 5% deposit, when deposit and additional expenses are factored in.
The average price of a home in England is currently £267,000, according to the ONS. A 5% deposit for a house of this price would amount to £13,350, with additional expenses (stamp duty when this is applied, surveys, conveyancing, mortgage broker fees) adding on an average of more than £2,000.
Despite the 95% mortgage guarantee scheme and the stamp duty holiday, aspiring homeowners could face difficulties with affordability, with the ONS House Price Index for February 2021 revealing that average house prices in the UK increased by 8.6% in the year from February 2020, up from 8% in January 2021. This is the highest annual growth rate since October 2014.
While such strong house price growth is promising for sellers, it may serve to put some buyers off, even with the various incentives at play.
How can sellers benefit from the mortgage scheme?
Given that the scheme is aimed at all buyers and isn’t only restricted to new-build homes – as some other government schemes are – sellers are likely to benefit from increased demand as the mortgage scheme rolls out. With the ongoing stamp duty holiday alongside the mortgage guarantee scheme, this should be enough to sustain demand for the foreseeable future, which improves your chances of selling your home for the best possible price.
The government has indicated that the scheme is time-limited - open to new 95% mortgages until December 31 2022, but may be extended if the circumstances require it.
To have the best chance of getting your home sold, and taking advantage of the demand triggered by the 95% mortgage guarantee scheme, you need to work with an experienced, reputable estate agent.
Here at Kings Group, we can help you to remain compliant and get the most from the sale of your home.
For more information on how we can assist you on your sales journey, please contact one of our branches in Essex, London or Hertfordshire today. We also offer a free and instant online valuation to give you an idea of how much your home could be worth on the current market.
If you are a buyer or seller looking to take advantage of the 95% mortgage guarantee scheme, or the ongoing stamp duty holiday, and need mortgage advice, check out our page here for all the advice you need.
