How does 95% Mortgage Scheme work?
The new 95% mortgage scheme has been announced by Chancellor, Rishi Sunak, which enables lenders to offer more and better deals for homebuyers with a lower deposit or limited equity. The scheme is designed to help those with a 5% deposit get accepted for a mortgage with the Government backing part of the loan.
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How will the 95% Mortgage scheme work?
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The scheme will help First-Time buyers, home movers and previous homeowners with a 5% deposit and with the access to 95% loan-to-value mortgages. The 95% mortgage will operate as any standard mortgage would for any first-time buyer or previous homeowner. As far as you are concerned, there will be no difference between a 95% mortgage offered through this scheme and one offered outside the scheme.
For anyone who is a Mortgage Lender However, the scheme guarantees that the government will shoulder some of the cost if the lender lost some of the money. For example, if the borrower has failed to keep up with the mortgage payments and the property was repossessed, but the subsequent property sale did not recoup the outstanding mortgage amount. The scheme will be open next month and run until December 2022.
Help-to-Buy Backed Mortgage Scheme
Similar to the famous Help-to-Buy scheme from 2013 to 2017, any lender that is taking part in the 95% Mortgage scheme will have to offer a five-year fixed mortgage as part of their range of 95% LTV products.
However, since the coronavirus pandemic, 95% mortgages have all but disappeared from the housing market – leaving many potential First-Time buyers stranded. So, this scheme is designed to encourage more lenders to kickstart the 95% market again.
So, any buyer with a small deposit can get onto these Government-backed mortgages. This is NOT restricted to just First-Time buyers; however, it is encouraging anyone to buy a home and jump onto the property market, including previous homeowners and home movers.
This what you can and cannot do:
You must be buying a main residential home in the UK. The 95% scheme cannot be used for any second homes or buy-to-let properties either in the UK or abroad.
The property must be worth £600,000 or less. Unfortunately, if you have your eyes set on a gorgeous house that costs more than £600,000, you won’t be able to apply for this scheme.
You must have a deposit equivalent between 5% and 9% of the property’s purchase price. This means you’ll have a mortgage LTV between 91% and 95%.
You must apply for a capital repayment mortgage. This means that you won’t be able to apply for an interest-only mortgage.
Before you can get a mortgage, you need pass the lender’s normal mortgage affordability criteria. You can call Stephen Kerrigan, Mortgage Advisor in Doncaster to have a chat about to guide you through on becoming a First-Time Buyer.
What mortgage rate can I get?
This has yet to be published, however, the lower your LTV, the better rate you’re likely to get so these mortgages are unlikely to be cheap. Keep an eye out on our Facebook page as we’ll update you on this guide as we know more in due course.
As mentioned previously, details haven’t been published yet on how to apply for these mortgages, but it’s expected that the process will just be the same as any standard mortgage. So, when searching for the best mortgage deal that’s right for you, it’s advisable to speak to Stephen Kerrigan, a fee free mortgage advisor based in Doncaster, about what type of mortgage is best for your situation.
Of course, Stephen will be honest and will be able to point out if these mortgages are too expensive, and will likely ask you to supply a larger deposit to bring the cost of the mortgage down.
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