The government’s new 5% deposit mortgage scheme aims to help any home buyer that is struggling to get on the property ladder.
Revealed in the Budget by chancellor Rishi Sunak the new 5% deposit mortgage scheme is available to anyone including first time buyers, home movers and previous homeowners.
The scheme is designed to help people struggling to get on the property ladder with a 5% deposit and the government guarantees the lender 95% of any amount above a loan to value (LTV) of 80%.
As an example, for a property valued at £200,000 and 5% or £10,000 deposit, the borrower was unable to keep up the repayments and the property was repossessed.
In this case the government scheme applies to 20% of the property value or £40,000 and guarantees the lender 95% less the deposit or £30,000.
Who can benefit from the scheme?
Mortgages with 95% loan to values in the market reduced from almost 400 in March 2020 just before the lockdown to only five in 2021 making it difficult for first time buyers with small deposits.
Family members can help home buyers by releasing cash from your home with equity release using a lifetime mortgage and giving the deposit to children and grandchildren.
The government scheme is available for mortgage applications from April 2021 operating until the end of 2022 with property values of £600,000 and less.
It is available to any buyer with a deposit of 5% to 9% of the property value and this must be your main residence located in the UK and cannot be a second home or buy-to-let investor.
See how much you can borrow and the monthly cost of a repayment mortgage for your property at this link:
Home buyer mortgage cost calculator with instant figures to buy a home.
You must set-up a repayment mortgage not an interest only mortgage and you will be subject to the lenders affordability criteria.
There are a number of large lenders joining the scheme including Barclays, HSBC, Santander, NatWest and Lloyds and Virgin Money may offering a 95% loan to value mortgage at a later date.
Mortgage rates have increased in the last year since lockdown and a 90% LTV product typically has a rate of 3.0% to 3.5% and a 95% LTV product is likely to cost more.
More time to benefit from stamp duty
The government’s stamp duty holiday has been extended until 30 June and can really only benefit purchases that are already near to completion.
Due to the demand for property last summer from home movers trading up to bigger homes to give them more space, time delays have occurred in the system fording the government to extend the scheme.
For properties under £500,000 there is no stamp duty tax saving £15,000 until 30 June and this drops to £250,000 until 30 September.
This table shows stamp duty tax payable based on the property value for standard rates and extra rates (includes the 3% on top) from 1 April 2021.
| Property Values | Standard rates | Extra rates |
|---|---|---|
| Up to £125,000 | 0% | 3% |
| £125,000 – £250,000 | 2% | 5% |
| £250,000 – £925,000 | 5% | 8% |
| £925,000 – £1.5m | 10% | 13% |
| over £1.5m | 12% | 15% |
First time buyer stamp duty is tax-free for properties valued under £300,000 applying after June, so the current holiday only applies for expensive homes in London and the South East.
It may be easier for remortgage buyers to remain and improve your existing property such as adding an extension or loft conversion to avoid the costs of moving and paying stamp duty tax.
What are your next steps?
Speak to our LCM mortgage advisers if you are planning to move home, buying your first home, remortgaging your existing home. Learn more by using the equity release calculator and property value tracker chart.
Why not start your free quote and we can find the best mortgages and lowest rates for your property at this link:
Free mortgage quote with the lowest rates to buy a new property.
Our London City Mortgage advisers can recommend lifetime mortgages by completing the equity release quote allowing you to receive cash from your property to help maintain your standard of living as costs rise.
