A new low-deposit mortgage scheme has now become available to homebuyers. Under the scheme, house purchasers need only provide a 5% deposit. The purpose of this new low-deposit mortgage scheme is to help those with limited resources onto the housing ladder.
The scheme is available for any purchase up to £600,000 but not buy to let or second homes.
Mortgages are provided by all the recognised High Street lenders (although there are some restrictions from some of them). Part of the loan – up to 15% – is underwritten or guaranteed by the UK Government. This means that if the borrower defaults on the mortgage and the lender suffers a loss, it will be compensated by the UK Government.
The Chancellor of the Exchequer, Rishi Sunak, said: “Every new homeowner and mover supports jobs right across the housing sector, but saving for a big enough deposit can be hard, especially for first-time buyers”. He sees the low-deposit mortgage scheme as a boost to the sector that will create new jobs. In addition, he sees it as helping people with low deposits of achieving their dream of owning their own home.
Mortgage rates for these loans are slightly higher than the rates where there is a larger deposit. For instance, some of the new rates are approaching 4%. For those who can afford a bigger deposit of, say, 10%, the rate might be 0.75% lower.
Affordability checks still required for Low Deposit Mortgage Scheme
Despite the UK Government underwriting the scheme, borrowers will still need to satisfy their lender they can afford the mortgage. This means the lender will apply its usual criteria on affordability before making the mortgage available.
If you’re looking for a mortgage to help you buy your home, we will put you in touch with a mortgage specialist to advise you on your options.