Government unveils 95% LTV mortgage scheme
The government has launched a scheme for people with a 5% deposit reminiscent of the Help to Buy mortgage guarantee.
The scheme can be used on property purchases up to £600,000, and operates by having lenders purchase a government guarantee on the portion of the mortgage between 80% and 95% LTV.
What does this mean for you as a buyer? Effectively you’re going to have more choice if you want a mortgage with a 5% deposit, as more banks and building societies have been incentivised to launch products.
In the long run this could drive down rates, as financial institutions desperately clamour for your business.
Similarities to 2013
The mortgage is similar to the Help to Buy mortgage guarantee product, which was launched by the then-Conservative-Liberal Democrat coalition government in 2013 and ran until 2016.
At the time there was a lack of mortgages for those with a 5% deposit, so the scheme was used to supply finance to mainly first-time buyers.
The scheme was a success in terms of take up, but it was blamed on substantial house price gains over the period.
Last year lenders also withdrew mortgages for those with a small deposit after being spooked by the pandemic.
However, unlike in 2013 things started to bounce back before the scheme was involved, as lenders have returned to 95% LTV lending without needing to use a government scheme.
As it stands you can also get a 5% mortgage with the likes of Coventry, Leeds and Yorkshire building societies – all of which offer similar rates to those using the government scheme.
These mortgages will be initially available through Lloyds, Santander, Barclays, HSBC and NatWest.
NatWest is the cheapest lender utilising the scheme at launch, with a 2-year fix at 3.90% and a 5-year fix at 4.04%.
Barclays is offering a 3.99% 2-year fixed rate and a 4.09% 5-year fixed rate.
And Santander is offering a 2-year tracker at 3.99%, a 3-year fix at 3.99% and a 5-year fix at 4.09%.
No product fees are applied to these mortgages.
HSBC offers a 2-year fix at 3.99% with a £999 fee or 4.29% with no fee, or a 5-year fix at 4.29% with a fee or 4.49% fee-free.
These rates are good – but nothing special.
Katie Brain, banking expert at Defaqto, said: “Although there have been a few products that been briefly available during the pandemic, this is the first time that we have seen mainstream lenders in the high LTV market in nearly a year.
“The new government backed mortgages are very competitive for anyone who wants a two-year fixed deal, although borrowers should always consider all the options before taking out a loan.”
While the scheme offers more choice, you shouldn’t expect to be treated any differently if you apply for one of these mortgages.
Your affordability will still be stress tested in the usual way, so you’ll still need substantial income to qualify for a mortgage.
These also aren’t mortgages designed for the credit impaired, so the mortgage guarantee scheme is only suitable if you’ve managed to build up something of a good rating.