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95% Mortgages: Helping first-time buyers join the property ladder

Getting on the property ladder has always been a challenge for first-time buyers, but even more so in light of the Covid-19 pandemic. Mortgage lenders have been more reluctant than ever before to give out low deposit deals, while house prices have continued to rise. 

To help combat this, the government has announced a new mortgage scheme that will run from April 2021 to December 2022. By reducing the risk for lenders, the government hopes that this scheme will help increase the number of 95% mortgages available to first-time buyers.

Generation Rent

Even before the pandemic, young adults were finding it a challenge to get out of renting and into buying. Many people living in rented accommodation find saving up for a deposit their biggest hurdle, and this widespread dilemma has given rise to ‘Generation Rent’.

According to the England Housing Survey, 85% of first-time buyers use their savings to place a deposit. However, 80% of social renters and 60% of private renters had no form of savings in 2019-20. The bottom line is that most people living in rented accommodation are struggling to put money aside, and therefore struggling to buy a property.

Saving up for a large enough deposit is the biggest hurdle in getting on the property ladder, but with the new government scheme should make this a lot easier. Aimed at turning Generation Rent into ‘Generation Buy’, the minimum deposit will be lowered to just 5%, giving even more people the chance to enjoy homeownership.

How will it work?

Also known as a 95% LTV (loan-to-value) mortgage, the loan from your mortgage lender will be for 95% of the property’s price. Your deposit will then cover the remaining 5%. So if the property is valued at £100,000, then the lender will give you a loan for £95,000. You will then need to pay the remaining £5,000 up-front.

These loans will be available at a fixed rate for up to five years, so buyers will know exactly what their payments are going to be. They’ll also be available to anyone, whether you’re a first-time buyer or have low equity in your current property. However, they won’t be available on buy-to-lets, second homes, or properties valued over £600,000.

Helping first-time buyers

The pandemic has led most banks to be much more cautious with lending money. While mortgages with a 5% deposit were once common, they are riskier for lenders and so many removed them from the table. This means that during the past year, buyers have needed at least a 15% deposit. 

The new scheme will give lenders the confidence to start offering 95% mortgages once again. This will significantly reduce the amount of deposit needed by up to two-thirds, making it easier for buyers to build up a large enough deposit and making mortgages more accessible. 

From the buyer’s side, the only difference between this and a normal mortgage loan will be the smaller deposit. From the lender’s side, the risk is lowered since the government will provide compensation if the borrower defaults on their payments.

Is a 95% mortgage right for me?

It’s important to remember that everyone’s situation is different. However, if you’re part of Generation Rent, then this new scheme could help unlock doors that would have otherwise been difficult to open.

Just remember that there’s no guarantee—all buyers will still need to go through the usual mortgage application, which involves affordability and stress tests. This is a way for the lender to check whether or not you’ll be able to keep up the payments.

Find your new home at Albury Place

Just a short walk from Shrewsbury town centre and all its local amenities, Albury Place is the ideal spot for young professionals looking to join the property market. Starting at £220,000, we have a range of apartments and town houses that come with stunning, high-end finishes and contemporary layouts fit for modern living.

Ready for less renting and more buying? Take your first step towards the property ladder and get in touch with us today to find out more about the properties we have available. Let’s make you a homeowner!

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