The UK mortgage market continues to show positive signs of recovery with the welcome return of 95% loan-to-value mortgages, meaning you’ll only need a 5% deposit to make that dream home a reality. Here's what we know so far:
Mortgage choice has increased
As mentioned in last month’s Mortgage Market Update, overall mortgage availability has improved, with the number of mortgage products available moving closer to the pre-pandemic levels in March 2020.
Alongside more competitive rates and improvements to lending criteria, February and March also saw a number of 90% loan-to-value mortgages emerge in the market following a long involuntary hibernation due to COVID.
The Spring Budget on 3rd March 2021 brought further signs of life with the announcement of a new Mortgage Guarantee scheme in April…
The Mortgage Guarantee scheme (95% LTV mortgages)
Rishi Sunak’s unveiling of the Mortgage Guarantee scheme was highly anticipated following media speculation in the weeks leading up to the Spring budget and has helped boost consumer and lender confidence in the mortgage market.
In order to turn ‘generation rent’ into ‘generation buy’, the Government looks to encourage lenders to offer a range of 95% loan-to-value mortgage products by acting as a guarantor on the higher 80-95% LTV slice of the mortgage. This means that first-time buyers and home movers will only need a 5% deposit to buy a home up to £600,000. The scheme will be open for new mortgage applications from April 2021 to December 2022 and many of the major high street lenders have confirmed they will be taking part.
It is important to note that the Mortgage Guarantee scheme is designed to give the lender peace of mind on riskier high loan-to-value products by guaranteeing to pay any potential losses so that they are comfortable making 95% products more common in the market.
The scheme does not ‘protect’ the buyer or cover their missed payments and, as with a standard mortgage, there is a risk of repossession if mortgage payments are not met.
The return of 95% loan-to-value mortgages in March
The promise of a Government-backed guarantee has had a positive influence on the mortgage market with several banks and building societies already re-entering the 95% loan-to-value space now.
At the time of writing this, Accord, Skipton Building Society and Bank of Ireland have all launched 95% deals independent of Rishi’s Mortgage Guarantee - which marks a real boost in confidence amongst lenders and a willingness to help buyers with lower deposits. Many who are desperate to get on to the property ladder but up until now have found the door to their first home bolted firmly shut.
If you have a small deposit and are unsure about what options might be available to you, you should speak to a professional mortgage advisor. Slater Hogg Mortgages has access to a wide range of low deposit mortgage deals.
I have a 5% deposit. How do I apply?
Currently, the Mortgage Guarantee scheme is set to launch sometime in April 2021 but no further information has been provided by the Government on how to apply. It is very likely that buyers will simply need to speak to a mortgage broker or directly to a lender who will advise on what 95% loan-to-value deals are available. Again, a Slater Hogg Mortgages Consultant will be able to provide you with further information on your options, as well as compare a range of 95% LTV deals already on the market.
What other options are there?
As well as 95% loan-to-value mortgages, there are several other options to consider when looking to get your foot on the property ladder. Slater Hogg Mortgages can advise you on the below:
- 90% loan-to-value deals – if you have a slightly larger deposit you may find more attractive mortgage rates on a lower LTV product.
- Scottish First Home Fund incentive. Terms and conditions apply. Further details available here.
- Help to Buy affordable home new build scheme. Available until 31 Mar 2022. Further details here.
- Guarantor mortgages – some lenders offer guarantor mortgages where a close family member offers their home or savings as security or ‘guarantee’ against the loan. In some cases, you may be able to borrow up to 100% of the property value using the guarantor’s collateral instead of a deposit.
Although COVID has created a lot of uncertainty in the market over the past year, making it difficult to predict outcomes for the future, there are clear signs the mortgage market has a lot to offer budding buyers this Spring. More competitive mortgage products, more low-deposit mortgage deals, more options to move and more confidence in the lending market - it’s starting to look a little rosier out there.