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Another boost for the housing market as The Government announces 95% mortgages.

LATEST NEWS | 05.03.2021

For those of you who are saving a deposit for your first home, the announcement by Rishi Sunak in the Budget this week has just made getting your hands on those keys a little easier. For first time buyers, and people who struggle to save, this is welcome news as they have seen the availability of 95% per cent mortgages disappear due to the pandemic.

How will it work?

The Government will guarantee loans to banks to enable lenders to offer mortgages worth 95% of the asking price on properties up to £600,000.  At the moment, the majority of lenders will only accept a deposit of 10%. This became the norm after the last financial crisis as banks were worried about lending money to buyers and losing it. Therefore, to give themselves more certainty when lending money the majority have since been asking for 10% of the asking price.  The pandemic has made lenders very cautious again as the economy has stalled over the past year. But by The Government guaranteeing loans, they are hoping to open up the housing market to more home buyers and provide lenders with more security.

Who will benefit?

Although this is predominantly aimed at helping first-time buyers due to reducing the amount of deposit needed, anyone wishing to buy a house up to the value of £600,000 can benefit.  As well as those new to the property market, with a 95% per cent mortgage, it will probably suit those who have a higher-than-average salary and who can easily afford the mortgage payments but do not have savings for a large deposit.

House Deposits

The average house price is hovering at around £256,000. 2020 saw house prices rocket, mainly due to The Government abolishing stamp duty which resulted in a rush for properties. But still, house prices show no signs of dropping dramatically, especially now with this move from the chancellor. In terms of the deposit, if we take the current average house price, a home buyer would need to save over £25,600, but now with this announcement the deposit will half to £12,800. We know that is still a lot of money, but it is a lot less and will now seem more achievable to most savers.

How does it compare to Help to Buy?

Most first-time buyers who want to purchase a home are already taking advantage of the other Government initiative, the Help to Buy equity loan scheme. This is set to continue until 2023 but is restricted to first-time buyers only and those buying new build properties. It works by The Government boosting a savers’ deposit and helping them to access a better mortgage rate. If you are a first-time buyer and want a new-build home, you can benefit from this as well as the new 95% mortgages.

House prices and interest rates

Bear in mind that we do not yet know what the impact of the announcement will have on the housing market. If property prices start to go up, you’ll obviously need to save more regardless of having a 95% mortgage. Likewise, we also don’t know if there will be any movement in interest rates. Whatever happens, ensure you can afford to make any mortgage repayments. If you’re considering a 95% mortgage but you feel cautious how exactly to proceed then it’s always helpful to seek out advice from a qualified and experienced mortgage advisor who can take away much of the uncertainty . Get in touch with the team at TaylorMade today.
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