A new UK Government-backed mortgage scheme is now under way that allows borrowers with deposits as low as 5% to buy a home.
The initiative was announced as part of the March Budget and is designed to help first-time buyers get on the property ladder.
Several of Britain’s biggest mortgage lenders – including Lloyds and NatWest – will be among the lenders first to take part.
It comes as the number of low deposit mortgages on the market shrank dramatically in the early days of the coronavirus pandemic.
Lenders became much more cautious about offering “riskier” loans in the tough economy.
So how does the new mortgage scheme work and who is eligible to apply?
Who is eligible to apply for the 5% mortgage?
The new scheme is designed to help first-time buyers or current home owners secure a mortgage with just a 5% deposit to buy a house for up to £600,000.
Housing Secretary Robert Jenrick said: “For too many people, no matter how hard they work, home ownership can seem out of reach. One of the biggest divides in our country has been between those who can afford their own home and those who cannot.
“That’s why we are determined to do everything we can to help hard-working families and prospective first-time buyers get their feet on the housing ladder in an easy and affordable way, to level up this country.
“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.”
When will the Government scheme be available to lenders and how will it work?
The 5% mortgage scheme will work by offering lenders the guarantee they need to provide mortgages that cover the other 95% – and it is based on “tried and tested” initiatives that reinvigorated the mortgage market in the recent past.
In 2013, the government launched the Help to Buy mortgage guarantee scheme in response to a similar shortage of low-deposit mortgages following the 2008 financial crisis.
That initiative helped more than 100,000 households to buy their own home across the UK.
The previous Help to Buy scheme also had the effect of boosting competition in the 5% deposit bracket among lenders who were not part of the scheme.
They ramped up their low-deposit ranges in order to compete with lenders taking part in the initiative.
Chancellor 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.
“By giving lenders the option of a Government guarantee on 95% mortgages, many more products will become available, boosting the sector, creating new jobs and helping people achieve their dream of owning their own home.”
Rightmove said on Monday that average seller asking prices hit a new record high of £327,797 in April, after jumping by £6,733 or 2.1% month on month.
Is the mortgage scheme available yet?
The Government scheme is being made available to lenders from Monday.
In general, the scheme, which will be open for applications until December 31 2022, can be used for new or existing properties.
Lenders will be able to purchase a government guarantee that would compensate them for a portion of their losses in the event of a repossession.
The guarantee will be valid for up to seven years after the mortgage is originated.
Which banks are taking part in the Government mortgage scheme?
Lloyds, Santander, Barclays, HSBC UK and NatWest will be among the first to launch mortgages under the scheme, with Virgin Money following next month.