The Government has announced a new 5% deposit ‘mortgage guarantee’ to help potential homebuyers. Conveyancing Partner, Clare Hallett from Frettens Solicitors looks at the new mortgage loan scheme and details what it means for buyers and lenders.
The scheme allows homebuyers who provide a deposit of at least 5% to take out 95% loan-to-value mortgages. This only applies to potential buyers looking to purchase a main residential home in the UK worth up to £600,000. The mortgages will be available for home movers and first-time buyers. The loans start in April and can be taken out until the scheme runs out in December 2022.
The policy has been introduced to encourage more lenders to re-join the 95% market. In addition, the scheme aims to give potential buyers who can’t afford huge deposits a chance to get on to the property ladder. According to Boris Johnson, The Government want to ‘turn generation rent into generation buy’.
These loans have been risky in the past, as some buyers have previously ended up in negative equity. This is why the ‘government guarantee’ has been put in place, The Government will offer to take on some of the risk of low deposit loans, giving lenders some protection from loss. Furthermore, the buyer will gain compensation for a portion of their losses if needed.
Clare Hallett says “It’s encouraging that support for first time buyers is continuing particularly as they often struggle to save for a larger deposit and many don’t have access to a bank of mum and dad. I also hope that the format means a more streamlined administrative process than some of the other schemes which are available. I hope that mainstream lenders continue to support this initiative and more are encouraged to get involved”