Last month, the Prime Minister announced plans for a 95% mortgage scheme to help enable first-time buyers onto the property ladder. With younger buyers struggling to save for a deposit and being stuck in the rental trap, plus with a plethora of mortgage deals being wiped out since the pandemic struck, can 95% mortgages be the lifeline needed?
Something has to be done
For a long time now, first-time buyers haven’t had it easy. And things got a little worse this year when lenders withdrew most of their 90% and 95% mortgages as the economy bore the brunt of Covid-19. Without such mortgages, first-time buyers were faced with the prospect of needing a 15% deposit to get on the property ladder.
Over the years, schemes like Help to Buy where only a 5% deposit is needed have helped to make a difference. Of course, there are changes coming for Help to Buy, in Spring next year, including the introduction of regional property price caps. But by only needing to save for 5%, makes buying a first home a lot more affordable, especially for those who do not have enough savings.
Are 95% mortgages the answer?
They could well be, with these new mortgages only being available to first-time buyers, on a long term, fixed rate. There are plans to loosen some of the requirements to get a mortgage through several banks too. This means applicants will face less stringent questions about their current financial circumstances, from their income to future plans, and any debts they have. Of course, there is some concern over whether 95% mortgages can and will be afforded. Mortgage affordability criteria is usually limited at no more than four, to four and a half times that of a buyer’s yearly income. However, there is talk of relaxing these rules and other affordability measures to allow greater borrowing for buyers with smaller deposits.
What are the options?
It’s all still very much in discussion and the government is yet to provide details of how it plans to make mortgages like these more readily available. It is likely that changes to current regulations, with direct involvement from the government will be necessary. We could see the return of mortgage indemnity guarantees and insurance policies, to protect lenders should borrowers default on their payments. Having the government guarantee the loans would be like the Help to Buy mortgage guarantee scheme which ended back in 2016.
Whichever way it is done, it helps to paint a more positive prospect for future first-time buyers, taking some of the pressure off saving for big deposits. The scheme also looks to address the need to fix the current broken housing market, as well as help boost the economy during this difficult period.
If you’re a first-time buyer looking for a new build home with Help to Buy and a 5% deposit, start your property search with us today. We list new homes with many developers across the country, so you can find them all one place! Search here.