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Over the last decade, it’s never been more difficult for first time buyers to jump on the property ladder, however, on the 19th of April, a new government-backed mortgage scheme was launched to help first time buyers or current homeowners secure a mortgage with just a 5% deposit. A motivating factor for launching this initiative is due to the demand for homeownership soaring over lockdown, with nearly 80% of private renters now saving for their house deposit. A recent survey found that 76% of private renters and 70% of those living at home have started saving for a deposit or put more money into their savings during the pandemic.
Has this new scheme got you thinking about buying your first home?
The new scheme is a temporary measure and will be open for new mortgage applications from April 2021 to December 2022, available on properties worth up to £600,000. This incentive coincides with other government homeownership options available including the Help to Buy loan, Shared Ownership and First Homes all schemes designed to help local first-time buyers and key workers onto the property ladder.
Heather Powell, Head of Property a tax, accounting and business advisory firm Blick Rothenberg says:
“The number of 95% mortgages has increased from just three a couple of months ago to over 60 today. Not many government initiatives have such immediate, positive results."
So who’s applying for this mortgage scheme?
The 95% mortgage scheme could be an option for buyers who were previously looking to put down a 10% deposit but ideally would like to keep some money saved for work or refurbishment on the property they are purchasing.
Housing Secretary Rt Hon Robert Jenrick MP says:
“The new mortgage guarantee scheme which comes into effect today will give providers the confidence to lend and help families and young people get on the property ladder without the prohibitive burden of a large deposit.”
What do I need to consider?
Even though this government initiative is a great booster for buyer confidence, it has a few things potential buyers need to be aware of.
Firstly, the 95% mortgage scheme is only open to banks and building societies, excluding non-bank lenders - participating lenders will have to pay a fee of 90bps per application. Secondly, only buyers with very good credit records can apply for these mortgages, buyers whose credit rating isn’t up to scratch and affected by irregular incomes may need to reconsider applying under this scheme. Thirdly, the scheme only runs until December 2022 and lastly, borrowing more means your monthly repayments will be higher and interest rates tend to increase with the loan to value rate of your mortgage so you may be paying considerably more interest than if you had saved a 10% deposit. Make sure you're comfortable and aware of potential changes in the market if these interests go up and the housing market goes down.
At Rea Estates, we’ve put together some advice before you submit your mortgage application:
Avoid panic buying - do your research and decide your budget. Be aware, some lenders are only lending on houses, not flats or new build properties.Most lenders are capping at 4.49 times your income. Some lenders are offering five-year fixed rates only, so you should ensure you take advice to confirm this would be appropriate for your circumstances.
If you’re a first-time buyer and you’re looking to find your first home, get in touch with one of our estate agents, who would be happy to provide you with more information at hello@reaestates.com.
About Rea Estates:
At Rea Estates, we provide award-winning services to a wide range of clients and we are highly specialised in all aspects of sales, lettings and management.
We sell, let, and manage property across the greater Belfast area and North Down. We also provide comprehensive property investment services, including property sourcing and property procurement, refurbishment and project management, and tenant sourcing and tenancy management. Our property services are entirely bespoke based entirely on the requirements of the client.
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