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The return of 95% mortgages


Following a hiatus during the pandemic, mortgages for buyers with a 5% deposit are making a return. Greg Cunnington, our Director of Lender Relationships and New Homes, explains how you can get hold of one of these deals and which boxes you need to tick to be eligible.

In the Budget last month the government confirmed a new Mortgage Guarantee scheme to bring back mortgage options for buyers with a 5% deposit. You can read more about this in an earlier article.

This scheme is very similar to the Help to Buy 2 scheme (not to be confused with the Help to Buy equity scheme) that was in place during 2013 to 2016.

It’s essentially a government insurance policy which gives protection to lenders who offer loans for 95% of a property’s value, against the risks associated with possible future house-price declines. This gives mortgage lenders confidence to lend to buyers with a 5% deposit.

The government have confirmed that this new Mortgage Guarantee Scheme will be introduced in April, with a tentative date of 19 April. Several major mortgage lenders were confirmed to launch mortgage products on this scheme.

These included Lloyds, NatWest, Barclays, Santander and HSBC who committed to launch with the scheme next month, with Virgin Money expected to follow soon after.

The return of 5% deposit mortgages

This confidence in the market has seen some mortgage lenders launch new mortgage products for buyers with a 5% deposit already.

These lenders are not using the government mortgage guarantee scheme, they are simply returning to offering mortgages for those with a 5% deposit like they did pre pandemic, and as such have been fine to offer these products before this scheme begins.

We have already seen Accord Mortgages, Bank of Ireland, Skipton Building Society, Coventry Building Society, Aldermore Bank and Buckinghamshire Building Society return with mortgage products for buyers with a 5% deposit. Meanwhile, TSB have confirmed they will also be launching this week.

Data from Moneyfacts shows since the government confirmed the creation of the Mortgage Guarantee scheme, mortgage product options for buyers with a 5% deposit have grown six fold.

On 1 March, there were five specialist mortgage deals available at 95% loan-to-value (LTV) that could be used either with the backing of a guarantor or were restricted to the local borrowers of regional building societies.

Since the chancellor’s Budget announcement on 3 March, six lenders have brought 5% deposit mortgages, increasing product availability to 29, according to Moneyfacts.

However, compared to the number of deals in March last year when there were 391 deals available, this market has a long way to go before it recovers.

Most of these lenders who have returned with mortgages for buyers with a 5% deposit are either only accessible via an intermediary, or are currently only offering the 95% mortgage products via intermediaries.

As such, you should ensure you are speaking to an intermediary so that you can be certain of obtaining the best product available to you in the market.

You can check out the best deals available right now via our website.

How does this benefit me?

This is great news for many buyers who have been unable to buy due to a lack of mortgage availability with a 5% deposit, or those who were previously restricted to using the Help to Buy equity loan scheme, which is available for people buying new build properties only.

This could also be a positive option for buyers who were previously looking to put down a 10% deposit, but ideally would like to keep some money saved for work or refurbishment on the property they are purchasing. These 5% deposit options make that an option once more.

The stamp duty holiday was also extended in the budget. The existing stamp duty holiday was introduced in June last year as a measure to help boost the housing market following its closure in the first lockdown.

It meant for buyers that the stamp duty nil band, the minimum purchase price at which stamp duty is eligible, was increased from £125,000 to £500,000. This meant buyer have the potential to save up to £15,000 on their transaction.

The government has now confirmed that this stamp duty holiday is extended until 30 June. They have also confirmed that this nil rate band will then be set at £250,000 until 30 September, giving an additional benefit for buyers that complete between 1 July and 30 September.

As such, for those of you with a 5% deposit not only can you now access mortgage options once more, but there is also still time to take advantage of the current stamp duty holiday.

Watch out for the criteria

The lenders which have launched new 5% deposit mortgage products have done so with restricted criteria, as they take a gentle approach to returning to this market.

The criteria restrictions vary quite significantly lender by lender, so if you are looking at purchasing with a 5% deposit it is vital you are speaking to an intermediary who can access all of these lenders so that they can navigate through the options for you.

Some of the criteria restrictions to look out for:

- Some of the options are for first-time buyers only

- Some lenders are only lending on houses, not flats or new build properties

- Most lenders are capping at 4.49x your income (we have access to one lender that can lend up to 5.5x your income however)

- Some lenders are offering five-year fixed rates only, so you should ensure you take advice to confirm this would be appropriate for your circumstances

- The interest rates are higher than current mortgages available to those with a 10% deposit, and criteria is a little more restrictive in terms of maximum borrowing and credit score requirements. As such, it is crucial you look to take advice from a mortgage intermediary on the options available to you.

You can see for yourself here how much you may be able to borrow. Or for a more accurate assessment please get in touch to speak to one of our advisers directly.

Please get in touch with us if you need any further advice. You can email us at [email protected] or use the contact us page on our website – click here.

This article was originally posted in What Mortgage online. You can see the original article here. Please note this will launch a new web page.

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