95% Mortgage Scheme – What you need to know

Here at UKDS, we want to arm you with the news and knowledge of what is happening in the financial sector. Knowledge equals power and we are passionate about people in this country knowing about their finances, taking control of them, and making good money decisions to avoid getting into problem debt. 

One area of finance that can seem daunting is mortgages. Owning your own home is something that is held in high regard but for many, it is out of their reach due to the high cost of rent and the inability to save enough for a large deposit. Over the past few years, it has been reported that those aged 35-44 are three times more likely to rent than 20 years ago, due to surging house prices and the after effects of the financial crisis during the mid 2000’s.

However, home ownership demand soared over the past year, where nearly 80% of private renters were saving for a deposit to get onto the property ladder.

The government’s commitment to supporting the housing sector was further strengthened on 19th April 2021 when they launched the 95% mortgage guarantee in association with high street lenders. 

What is the 95% mortgage scheme?

The scheme is to help first time buyers and current homeowners secure a mortgage with just a 5% deposit to buy a house up to a value of £600,000. 

Why is it of interest to me?

There has been a clear inequality in the housing market for years as evidenced in a report by The Equality Trust. 

Some find it incredibly difficult to move once they are already on the housing ladder due to financial reasons and the housing market bubble; others cannot get onto the ladder in the first place due to the high costs of rent and living making it difficult to save for a hefty deposit. 

It is not the repayments that are necessarily an issue either, it is the difficulty people face of getting together a large deposit. Throw in the after effects of the past year due to the pandemic and it is doubly hard which means that many hard working households are unable to get on to the housing ladder and are stuck in the renting cycle. 

Will the scheme be a permanent one?

Not at present. It is thought that it will be available for new mortgage applications from April 2021 to December 2022, at which end date the government is expecting that the economy should have fully recovered from the response to the pandemic. 

How do I find out if it is available to me?

When lenders are considering you for a mortgage, areas such as your income, your outgoings, your credit score, property value, deposit value and employment status are all considered. These things all have an effect on whether they offer you the 95% mortgage. 

Despite the new scheme in place, the same usual affordability and creditworthiness checks will be carried out and applicants will still need to show that they can afford the monthly repayments.

Is there anything else available to help me get onto the housing ladder?

There are other government backed schemes that can help in the quest to buying your own home. 

Help to Buy scheme – a government backed equity loan to support first time buyers with a low interest loan towards their deposit.

Shared Ownership scheme – first time buyers are given the option to buy a share of their home and pay rent on the remaining share.

First Homes scheme – local first-time buyers and keyworkers are helped onto the property ladder by offering homes at a 30% discount compared to the market price.

Are there any caveats to the 95% mortgage scheme?

Some experts have said to be cautious when using this scheme. Government guarantees on high loan to value mortgages does not always mean a good sign in the housing market. 

With the stamp duty holiday and the 95% mortgage scheme, there are some experts who believe that the government are artificially propping up the housing market and property prices are being artificially inflated. 

Some experts are predicting that house prices will fall once the government withdraws their financial help and the schemes end. This could mean that house prices could fall and buyers with the smaller deposits could fall into negative equity. 

There is a flip side to also consider. Schemes can cause property prices to rise – this has been seen in the stamp duty holiday scheme which has inflated the housing market. This in turn can see buyers remain shut out from the housing market because their 5% deposit is still not enough to buy a property. 

Obviously, owning a home and saving for a deposit is a big life milestone. If you are thinking of entering into a 95% mortgage, ensure that you have received good financial advice, have researched the market and have taken into account your own financial situation, your credit history and the interest rates that you will be offered.