Doncaster Mortgage Advisor, Stephen Kerrigan gives his verdict on the new government backed 95% mortgage scheme, and reveals why borrowers who are considering it, should also be mindful of the rates.
It’s been a couple of weeks since the following budget announcement, and with the top Highstreet banks already committing to support the 95% government backed mortgage scheme, what’s not to like? Well, the fact that the scheme is available to not just new build properties, but also within the second-hand property market, which gives borrowers many more potential properties to choose from.
One year on and in most cases, lenders acted prudently at the onset of the pandemic to restrict higher loan-to-value mortgages, along with tightening affordability and greater restrictions around certain types of employment, such as the self-employed. As we entered the unknown and faced the unprecedented crisis, it meant that choice became – well, somewhat limited, especially for First-Time Buyers.
However, with an exit out of Lockdown and the pandemic on the horizon thanks to the vaccine, lenders are increasingly able to make lending decisions with more confidence and so we have seen a steady increase in options available at 90% LTV.
Fundamentally, this is the reason for an initial concern around the new government backed scheme, as although the major Highstreet banks have confirmed their support, which is absolutely brilliant, the relatively small lender pool is unlikely to provide enough competition to drive the rates down.
Therefore, in turn this will affect many borrowers’ ability to qualify for a mortgage, as the higher rates will impact upon overall affordability especially as the latter is still one of the elements in the lenders underwriting assessment that has remained cautious. However, this will mean that either access to the new scheme is stretch in terms of income affordability or is not attainable at all.
The stamp duty holiday is due to continue until the end of September, but until then it will still save borrowers some money and so the option of having enough for a 10% deposit may be available to a few more than it would normally be. However, we are waiting to see the announcements from the participating lenders in terms of their initial product ranges and the criteria they will apply from April, and like Help to Buy, we should expect to see more lenders join the scheme over time.
We welcome the new 95% mortgage guarantee scheme that allows consumers to get a mortgage with just a 5% deposit. It’s great news that the main providers are already on board for when the scheme goes live next month – and that anyone not just first-time buyers can use the scheme, such as previous homeowners and home movers.