Chancellor Rishi Sunak’s government-backed 95% mortgage scheme, announced in the Budget last week, will allow many people who have not been able to save a 10% deposit to access home loans.
There was more good news — with the much-called for extension to the stamp duty holiday.
For Britain’s would-be home movers and first-time buyers, there are decisions to be made and many questions to ask.
Is a 5% deposit scheme too risky? Does this stimulus mean that I’ll just be buying a home at an over inflated price? What happens if I still cannot get my purchase completed by the new stamp duty deadline on June 30?
95% mortgages do not sound like such an outlandish idea and indeed, they have been a common feature of the housing market. Before the financial crisis of 2007 it was even possible to get a 110% mortgage, leaving you extra cash to spend on furniture.
A few 95% deals are even available now, in advance of the launch of the government deal next month, though they come with strings attached.
When the coronavirus crisis hit, however, many lenders pulled 95% deals, fearing that new home owners would lose their jobs and be unable to pay the mortgage, or that the market would crash.
Under the chancellor’s new guarantee scheme, the government will act as a safety net for lenders to incentivise them to offer these low-deposit mortgages.
Brian Murphy, head of lending at broker the Mortgage Advice Bureau, explains that the scheme comes with some restrictions.
For a start, only properties worth up to £600,000 can be bought with a 5% deposit and you will still have to pass your lender’s usual criteria before being offered a loan.
However, the low-deposit mortgages will be open to everyone, whether they are first-time buyers or not, and unlike the Help to Buy equity loan scheme, these deals are not restricted to new-build properties.
Details of the mortgage packages are not yet available, although Santander, Lloyds and HSBC have announced that they will be taking part.
Ben Taylor, chief executive of London estate agents Keller Williams UK, believes the loans will be popular, not just with first-time buyers, but also with those who are looking for bigger homes and more outdoor space.
‘With the government slashing the initial financial barrier to buying in the form of 95% mortgage availability, home buyers are even better placed to expand their property expectations and secure a home that meets their requirements,’ he says.
However, Islay Robinson, chief executive of Enness Global Mortgages, says the products ‘take the market into pretty overheated, dangerous territory’.
He adds: ‘We’ve previously seen the results of this kind of precarious lending to those who aren’t really in the financial position to commit to it.
‘Although many big lenders have committed, it will be interesting to see how many buyers are able to secure such a product.’
Is this the start of a housing bubble?
The chancellor’s new schemes have not been without their critics.
There is concern that demand could quickly outstrip supply, especially in the first-time buyer market. ‘Encouraging banks to lend to first-time buyers can only ever be part of the solution. Too much demand-side stimulus without increasing supply risks stoking an unsustainable housing bubble,’ warns Dean Clifford, from Great Marlborough Estates.
Becky O’Connor at Interactive Investor calls the new 95% mortgage scheme ‘a recipe for massive price inflation’.
Meanwhile, James Forrester, managing director of lettings and estate agent Barrows & Forrester, says that the UK property market has already ‘raced away at an alarming rate’ due to the stamp duty holiday.
In the short-term, though, the two policies look set to prop up house prices through the end of lockdown and beyond.
‘The stamp duty cliff edge has been smoothed into a runway’
Rishi Sunak had more good news for the housing market last week — he is now extending the stamp duty holiday scheme previously due to finish on March 31.
At present, anyone who buys a new property pays no stamp duty on the first £500,000, a possible saving of £15,000. The policy has catalysed the market to such an extent that it has been taking more than 17 weeks to complete on a property purchase, with huge backlogs and an estimated 160,000 transactions stuck in the system.
Before the Budget there were fears that a ‘cliff edge’ when the policy ran out would mean that thousands of housing market chains would be broken and purchases would fail.
The new policy not only reassures those with slow transactions that they will be able to take advantage of the saving, but also incentivises those who have not yet started to look for a new property.
The deadline for the end of the holiday is now June 30, while buyers will not pay stamp duty on the first £250,000 of their purchase until September 30.
‘The chancellor hasn’t just smoothed the cliff edge. He’s flattened it into a runway. And the resurgent property market is cleared for take-off,’ says Jonathan Hopper, CEO of buying agents Garrington Property Finders.
‘The announcement will soothe frayed nerves and convince more of the thousands of people who’ve already decided they want more from their home that now is the time to move.’
The move is not just incentivising residential buyers. Law firm Wilsons says it is popular with buy-to-let landlords, too. In the fourth quarter of 2020, 61,800 buy-to-let properties were purchased, the highest quarterly figure since 2017.
‘The extension to properties valued at £250,000 or less, which will be introduced in July and run to September 30, could see more sustained growth in buy-to-let investments. Landlords are also hoping that the end of the latest lockdown will see young professionals, many of whom have spent much of the crisis staying at their parents’ homes, return to renting in city centres.’
Can't wait until April? Here's where to look now
The government-backed mortgages come on stream next month, but there are still some 95% mortgages available now, if you know where to look…
- Barclays Mortgage: Fixed, 3.45%. Springboard mortgage — family savings used as guarantee so no deposit required
- Family Building Society: Fixed, 3.64%. Family mortgage — additional security from family members required plus 5%
- Furness BS: Fixed, 3.99%. Only available to those with a postcode beginning with LA
- Penrith BS: Discounted Variable Rate, 3.99%. Mortgage boost scheme for specific local areas only
- Saffron BS: Fixed, 4.17%
Source: Moneyfacts
‘My lockdown savings will now be enough for a deposit’
Sophie Parcizi-Wayne, 24, is hoping to take advantage of the chancellor’s new government-backed 95% mortgages.
She has recently moved back from the US and is living with her parents in Highgate, and although she has enough money for a 5% deposit thanks to lockdown savings, she does not have enough for 10%.
‘If I was to start renting, all of the savings I have would go out of the window,’ she says. ‘I figure that it will be much better if I can buy with one of these mortgages, because why would I want to pay other people when I can pay myself.?’
Sophia, who runs family history book service Trado Books, is hoping that a mortgage broker will be able to find her a mortgage, as they are able to work with her self-employed status.
‘My income has been quite consistent, and I’ve been very good at paying off everything,’ she says.
She’s looking to buy a two-bedroom flat in central London so that she can live with a friend, and feels that the 95% mortgage scheme will give her that chance.
‘It feels like an investment in myself,’ she says.
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MORE : New 95% mortgage scheme: How does it work and which banks are offering them?
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source https://metro.co.uk/2021/03/09/the-return-of-the-5-deposit-mortgage-scheme-what-does-it-mean-for-you-14211050/
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