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The chancellor, Rishi Sunak, announced in his recent budget two pieces of good news for the property market. Firstly, the stamp duty holiday will be extended for three months, avoiding the feared ‘cliff edge’ drop in transactions, but not long enough to create another bottleneck. Secondly, there will be a new scheme to bring back 95% mortgages.
Before the coronavirus pandemic hit in March 2020, there were around 391 mortgages available that required only a 5% deposit, according to a report in the Guardian. By February 2021, there were only five available, making it very difficult for first time buyers with small deposits to take the first step on the property ladder.
The new scheme will provide government backed loans to give banks and building societies the confidence to offer 95% mortgages. If the repayments are not met, the portion of the losses to the lender between 80% and 95% will be covered by government funding. The scheme will open this April and run until December 2022.
Many of the UK’s largest lenders have agreed to partake in the scheme, including Lloyds, NatWest, Barclays, and HSBC. It is aimed at households with a good credit history who are struggling to save the required amount for a deposit, to a property value of up to £600,000. Second homes or buy-to-lets will be ineligible.
There is still some speculation as to what the interest rates are going to be. Nick Morrey, the product technical manager at the broker John Charcol, says: “I would expect the 95% products to range from 3.49% to 3.99%, with some going over, depending on length – for example, five-year fixed rates without a product fee.”
Lenders have been instructed by the government that they must offer a five-year fixed rate deal, allowing borrowers to keep repayments at a set level for the medium term.
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