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 It's official! Mr. Sunak has confirmed that the Government will guarantee loans to buyers (that's right, not only first-time buyers!) worth 95% of the purchase price on properties valued at up to £600,000!

The new scheme is similar to the Help to Buy mortgage guarantee scheme, which closed to new loans in 2016... if you were keeping up to date with the mortgage news back then.

But this time, the 95% mortgage loans will be available to experienced home buyers as well as first-time buyers, and will not be limited to new build properties.

'Turning "generation rent" into "generation buy" has been a focus for Prime Minister Boris Johnson, and he announced the potential return of a 5% deposit mortgage scheme late last year. But the official news today will bring joy and hope to First Time Buyers and home movers, struggling to fork up a huge deposit.

How will the new 95% Mortgage Guarantee Scheme work?

The great news is, any property under the value of £600,000 will be eligible for the scheme 5% deposit scheme.

The national average asking price of a first-time buyer property was £200,692 in February, Rightmove data shows. A 5% deposit would be £10,035, compared to a 10% deposit of £20,069. Much less of a sting to the bank balance! 

The 95% Mortgage Guarantee scheme will launch this April and will be available for new mortgages up to December 31, 2022.

Who can make use of the new scheme?

As mentioned earlier, the 95% mortgage loans will be available to experienced home buyers as well as first-time buyers. However, it's important to remember that paying a lower deposit means you will need to take a bigger mortgage.

At the moment, lenders will only let you borrow up to 4.5 times your annual salary. In the example, (if we refer back to the Rightmove data), of the first-time buyer property, the buyer would need a mortgage of £190,657 (£200,692 minus a £10,035 deposit). This means they would need to earn £42,368 a year.

This is above the average salary in the UK which for 2020 was £38,000 - and the calculation includes top earners such as chief executives who are unlikely to be first-time buyers.

So many who wish to use the scheme to buy a house alone will probably find it a challenge to meet the lenders' criteria - but for a couple, it will be more achievable. Because the lender takes the joint annual income and applied the same calculations. 

It is likely that people in lower-value housing markets, such as in northern England, will find the 5% deposit useful to gain access to homeownership, while buyers in London will not be able to meet the 4.5 thresholds to afford the inflated house prices.

What are the banks saying?

Mr. Sunak announced that a number of the UK's largest lenders including Lloyds, NatWest, Santander and Barclays will be offering the mortgages from next month.

The affordability tests that banks carry out on borrowers may change. The Bank of England, which regulates the mortgage market, might adjust the rules for borrowers with low deposits in light of the scheme.

We don't know how many banks will decide to offer them at all.

Banks that will decide to offer those low-deposit mortgages will almost certainly set higher mortgage rates, as they will still be taking on more risk, despite the Government covering most of it.

Something to keep in mind...

Due to the complimentary announcement about the Stamp Duty Holiday extension, we could see another rush to the housing market as buyer demand rockets, bidding wars unfold and house prices rise. 

There could be a danger that the 95% mortgage guarantee scheme could increase even more demand and inflate house prices, pushing the opportunity of owning a home further out of reach for those on lower salaries. 

Read more about that here: Stamp duty holiday to be extended.

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