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The Salary you’ll need for the 95% Mortgage Scheme

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It feels like a lifetime ago, but at the start of this month (April 1st) the 95% Mortgage scheme launched, which is to guarantee first-time buyers or home movers a chance to get onto the property market with just a 5% deposit.

Doncaster based Mortgage Advisor; Stephen Kerrigan warned first-time buyers that they’ll need to earn 88% more than Sheffield city’s median salary if they want to meet the affordability criteria for a 95% mortgage. The scheme which was launched on April 1st involves the government guaranteeing a 95% mortgage for buyers with no less than 5% deposits.

However, the government will partially compensate the mortgage lender if the homeowner defaults on their mortgage. This means the government will guarantee the portion of the mortgage over 80%. As Stephen Kerrigan, Mortgage Advisor from MortgagesRM explains, the scheme is designed to encourage banks to start offering 95% mortgages again, after nearly every single one was withdrawn during the COVID-19 pandemic.

Is it like the Help to Buy Scheme?

Yes, the 95% Mortgage scheme is very similar to the Help to Buy Scheme, but where’s the old scheme ended to new applicants in November 2019, this new scheme will run from April 2021 to March 2023, and will see the government lend buyers up to 20% of the cost of a newly built home, and up to 40% in London.

What is the average deposit for a First-Time Buyer?

Results found that the average deposit a first-time buyer will need for a 95% mortgage in England is £11,087 and an average salary of £46,812. However, lenders will still let low-income borrowers get onto the property market, but in many more expensive parts of the country they will struggle to get a mortgage, even with a 5% deposit.

As seen with the help to buy scheme and the recent stamp duty holiday, this scheme could contribute to rising property prices, keeping home ownership out of reach for more people in the future.

The Salary you’ll need for the 95% Mortgage Scheme

What has the Government said?

Chancellor Rishi Sunak said during the Budget 2021 announcement:

Owning a home is a dream for millions across the UK and we want to help as many people as possible. Saving up for a big deposit can often be difficult, and with the on-going pandemic sweeping across the globe has meant there are fewer low deposit mortgages available.

So, by giving lenders the option of a government guarantee on 95% mortgages, many more products will become available to help people achieve their dream and get on the property ladder.

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