Impacts of 95% LTV Mortgage Guarantee Scheme on Property Market
The latest government-backed 95% LTV mortgage scheme announced during the Spring Budget is now available to use. This scheme allows buyers to secure a mortgage with a deposit of only 5%, on homes of up to £600,000.
Riskier lending was much more common prior to 2007. As a result of the Global Financial Crisis, lenders are now much more hesitant to offer loans. The new 95% LTV mortgage guarantee scheme, is designed to cover a portion of your property’s purchase price. The UK government is acting as a guarantor for the lenders’ liability. This means, if borrowers are unable to pay back the amount, the government will financially support banks. Thus, mitigating the risks for lenders. Providing them with much more confidence to offer higher LTV mortgages.
Low-Deposit Mortgages Plummet
Up until now, banks were reluctant to offer higher LTV mortgages. As a result, the number of low-deposit mortgages plummeted from 391 to just three. The Treasury hopes to restore confidence, by encouraging lenders to offer larger mortgages. At present, several lenders are backing this great scheme including:
Banks are now much more likely to lend to borrowers because of the protection they are receiving, should house prices decline. Nevertheless, banks are no longer allowed to lend over 15% on loans that are more than 4.5 times the buyer’s income. Therefore, most of the lending is capped at 4.5 times the borrower’s income.
Over 680k Aspiring Homeowners Achieve Property Goals
This scheme provides the perfect opportunity for home movers and first-time buyers to step foot on and progress up the property ladder. Many would not be able to do this before the 95% LTV mortgage guarantee. As property prices increase, it is becoming much harder for aspiring homeowners to achieve their goals. Uncertainty during the initial stages of the pandemic resulted in many banks scrapping the low-deposit mortgages.
So, who is eligible to apply for the 95% LTV mortgage?
- First-time buyers can apply for the scheme as well as home movers
- Only available if you are looking for a place of residence for yourself
- Not available for BTL properties or second homes
- On properties up to £600,000, including new builds
- Subject to passing lender’s affordability and income criteria check
Ultimately, over 687,000 households have taken advantage of the various schemes available, that have paved their way into homeownership. This scheme is similar to the Help to Buy mortgage guarantee scheme. In short, the previous project ran from 2013 to 2016, helping over 105,000 buyers’ step onto the property ladder.
Housing Markets Across the UK
It is worth noting, markets with higher value housing may not benefit greatly from this scheme. The LTV mortgages are better suited to those wanting to buy a house in lower value housing markets. For instance, prices down South are extremely high. To purchase a £500,000 home in London, you could get a mortgage of £475,000. However, you will need a household income of at least £105,000 to secure this. Therefore, it will be much harder to pass the affordability and income check with the banks.
The CityRise Verdict
Homeownership is continuously becoming more out of reach. Despite those who are in full-time employment, it is still extremely difficult to secure a property because of the record-high property prices. Likewise, the furlough scheme is ending on 30 September. Therefore, making it difficult for borrowers to utilise the scheme because banks will be more likely to lend to those in stable employment.
At CityRise we believe this government-backed scheme will only heighten the activity in the property market. Predominantly, in areas with more affordable properties. Providing an affordable route for homeownership will allow aspiring homeowners to reach their property goals and start their property journey. Especially if the scheme runs to 31 December 2022, there is enough time to secure a purchase.
Demand for property is still skyrocketing, with first-time buyers acting as the driving force. The supply and demand imbalance will remain, causing property prices to rise further. In summary, buyers will need to act fast to secure the best value properties because this new scheme will ignite the levels of demand. Causing an upward spur on property prices.
Together we can turn ‘Generation Rent’ into ‘Generation Buy’ – Housing Secretary Rt Hon Robert Jenrick MP