95% mortgage scheme, a boost to the market?

As part of their bid to encourage ‘Generation Rent’, the Chancellor announced a new 95% mortgage scheme available to everyone. 

The launch of the 5% deposit Help to Buy mortgage scheme will be limited to properties worth up to £600,000 and is open to everyone who wants to own their own home as part of the Prime Minister’s ‘Generation Buy’ campaign as he echoes the sentiments of a previous female Conservative PM.

It is thought that lenders who utilise the scheme will offer fixed mortgages for a minimum of five years to buyers, with the financial institutions able to buy a government guarantee to compensate them for a portion of heir losses in the event a property is repossessed.

However, with this extra added stimulus to the market, what additional pressure and backlog will this add to the system as more buyers hope to benefit from the extension and subsequent tapering of the SDLT holiday?

The property industry has come out in support of the measures outlined by the Chancellor.

Linda Kirk, Director of Conveyancing Adkirk Law, welcomed the Mortgage Guarantee scheme for first-time buyers which gives them the opportunity to buy their own home backed by major banks and building societies with up to 95 per cent mortgages.

“Many lenders have been asking for increasing levels of deposits so many first-time buyers have found it difficult. This will also help stimulate the economy and brings in a new kind of buyer into the market as long as lenders are committed to it.”

Phil Bailey, Director at mortgage technology company Twenty7Tec:

“A government-backed 95% LTV mortgage scheme is just what customers and lenders need in the wake of the pandemic. Although we have seen a 40% increase in mortgage activity, mainly driven through the SDLT reduction and buyer demand, many lenders affordability and acceptance criteria remain stricter than it has been for many years. Coupled with rising house prices, rents and it becoming harder for many to save the required 10-15% deposit. A scheme that supports both customers and lenders will surely provide much need security and confidence in the mortgage and housing market.

“The more confident lenders are in their future outlook and security, the lower their risk appetite and the easier it is secure higher LTV mortgages. A key factor in the success of this scheme will be its simplicity and how lenders consider income multiples, affordability and the price point they set their products and rates at. Previous MIG (Mortgage Indemnity Guarantee) schemes have not always provided the rates or acceptance criteria to make the proposition really meet buyer demand.

“The devil will be in the detail and how lenders chose to receive the news.”

Rob Houghton, CEO of Reallymoving, said:

“We saw the proportion of First Time Buyers in the market drop by 12% in the second half of last year, as they benefited less than existing homeowners from the stamp duty holiday – so we’re pleased to see the Government is focusing on making it easier for them to buy a home. High loan to value mortgages do come with risks but there is a place for them in today’s market as long as First Time Buyers are educated and informed about what could happen if prices fall.

“Not everyone has access to the Bank of Mum and Dad, so the launch of a mortgage guarantee scheme will help democratise home ownership and bring it back within reach of those buying without financial support. There are vast numbers of people who could easily afford monthly mortgage repayments but are stuck paying a higher amount in rent each month, meaning they’re unable to save a deposit.

“The government needs to work with lenders to ensure these loans are available at low interest rates, reflecting the fact that the lender’s risk is reduced. And it’s essential that housebuilding volumes recover quickly following the pandemic – otherwise increased demand will simply inflate prices over the longer term.”

Neil Weston, Principal of Scout Financial Services, said:

“We are thrilled to see Government support for first time buyers included in the Chancellor’s Budget today. We have been calling for greater support for mortgage lenders in this space for a while now and action on this was promised by the PM back in October, so it’s great to finally see a plan in place.

“Whilst the availability of mortgages for 90% of the purchase price has improved recently, the market has remained restricted by tight lending criteria and the lack of high loan-to-value mortgages. More support for lenders to lend a higher percentage of the purchase price will no doubt be welcomed across the industry and by first time buyers. However, many first time buyers may find themselves in a tricky position where they will now have enough money saved for a deposit, but they are unable to secure a mortgage as a result of being furloughed. Recent Treasury figures indicate a total of 4.7 million Brits remain furloughed, many of whom are would-be first time buyers in sectors such as retail, travel and hospitality.

“Furloughed workers looking to buy a home face far fewer mortgage options, with many lenders refusing to consider furloughed income at all. This announcement from the Chancellor today does little to alleviate that; if anything, the extension of the furlough scheme will only exacerbate the problem. If you’re furloughed and unsure about mortgage availability, it might be worth speaking with a whole-of-market mortgage broker, who will be able to explain your options.”

Mark Gordon, Director of Mortgages, comparethemarket.com, comments:

“The Government’s confirmation of a ‘Generation Buy’ scheme will help to fill the small deposit mortgage void which is preventing many first-time buyers getting a foot on the ladder. According to our research, almost one-quarter (23%) of first-time buyers have seen their mortgage lender reduce their loan value in the past year.

“The Government has been consistently trying to boost demand, with the latest extension of the stamp duty holiday, and it’s now up to the industry to act. The confirmation today should give more lenders the confidence to return to the small deposit market. For first-time buyers in particular, this is an important boost to help promote choice and competition in the mortgage market.”

Andy Scaife, CEO of O’Neill Patient, said:

“We are very supportive of the Government’s new mortgage guarantee scheme as it should help to further stimulate the housing market as the stamp duty holiday draws to a close. This will open up the market to home movers and, more significantly, first-time buyers who now have an option of only having to find a 5% deposit.

“The scheme’s appeal is likely to be wide ranging across different incomes as, with this scheme, a 95% mortgage is not just for people on lower salaries buying lower valued homes, it is also for those who have a higher income buying in more expensive areas.”

Paula Higgins, HomeOwners Alliance Chief Executive, commented:

“We welcome the new mortgage guarantee scheme that allows consumers to get a mortgage with just a 5% deposit. It’s great news that the main providers are already on board for when the scheme goes live next month – and that anyone can use the scheme, not just first time buyers.”


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