In the Spring Budget 2021 the government announced a new 95% mortgage guarantee scheme.
The scheme is available to all home-buyers (not just first-time buyers) from April 2021 on properties worth up to £600,000.
Lenders will be encouraged to offer 95% mortgages based on the government guaranteeing outstanding loans. It means lenders have a government guarantee in the event the borrower is unable to meet their monthly mortgage repayments, or if house prices fall and the property is worth less than the outstanding mortgage loan – known as negative equity. Through the scheme the government agrees to cover these risks, which means lenders will be more open to lending to homebuyers with a small deposit.
So how does this help you?
A 95% mortgage enables you to borrow up to 95% of the purchase price of the property you want to buy, with the remaining 5% made up of your deposit.
For example, if you were to purchase a £300,000 property you would only need to put down a £15,000 deposit and you'd be able to get a mortgage for the remaining £285,000.
An arrangement such as this will sometimes be referred to as a 95% LTV mortgage, where LTV stands for ‘loan-to-value’ ratio. In other words, the mortgage is for 95% of the property’s market price.
A 5% deposit could help you get on the property ladder sooner, as you’ll need to save less of a lump sum.
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