A guide to the newly announced 95% Mortgages

A guide to the newly announced 95% Mortgages

Along with the good news about the extension to the Stamp Duty holiday, the Budget delivered another boost for homebuyers with the announcement of 95% mortgages, which mean that first-time buyers and existing homeowners can both benefit from the opportunity of getting a mortgage with a deposit of just 5%.

Here’s everything you need to know about 95% mortgages:

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What is a 95% mortgage?

When he introduced the new scheme in his Budget speech, Chancellor Rishi Sunak explained that it was: “A policy that gives people who can’t afford a big deposit the chance to buy their own home. Lenders who provide mortgages to homebuyers who can only afford a 5% deposit will benefit from a Government guarantee on those mortgages. As the Prime Minister has said, we want to turn generation rent into generation buy.”

Until this announcement, most mortgage lenders would only offer a maximum of a 90% loan-to-value, meaning that buyers needed to come up with 10% of the value of the home as their deposit before they could buy it, which has become even more of a challenge due to the financial impact of Covid-19.

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How will it work?

These ‘mortgage guarantees’ will be available for first-time buyers and existing homeowners on any property worth up to £600,000, with Sunak announcing that lenders like Lloyds, NatWest, Santander, Barclays and HSBC would be offering them from April onwards.

There will be affordability tests for these 95% mortgages, with lenders looking at your credit score, income, outgoings and debt, as well as ‘stress testing’ to see what impact interest rate rises would have.

The advantage of a 95% mortgage is clear in that it reduces the amount you need to have saved up as a deposit, but there are factors you’ll need to consider, like the likelihood that interest rates for these will be higher than mortgages with a larger deposit.

But if continuing to save up for that big deposit is unrealistic, it’s undoubtedly good news that this new scheme, especially combined with the Stamp Duty holiday, means that your dream home may be within reach sooner than expected.

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According to Rightmove, the average 10% deposit required in the North West would be £21,556, with a 5% deposit coming in at £10,778, which illustrates just how crucial this announcement could be for homebuyers.

Alternatively, the Shared Ownership scheme is already available for many Laurus properties across the North West, offering homebuyers the chance to buy between 25% and 75% of the home and pay monthly rent on the rest.

If you want to find out more about Shared Ownership or the 95% mortgages, why not get in touch with one of our Sales Advisors today?


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