Ashbourne Estate Agents

The return of the 5% mortgage; good news for first-time buyers?

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As first-time homebuyers know, getting a foot on the property ladder can be tough. While interest rates have dropped reducing the cost of borrowing dramatically, there is still the matter of saving enough money for a deposit. This can be a tough proposition if you are currently spending a large portion of your income on rental payments.

For first-time buyers on the bottom rung of the property ladder, this can pose a problem as salary levels and earnings may not support being able to save large sums for deposits. With house prices in the UK averaging £250,000 a 10% deposit means that £25,000 needs to be found up front. With some lenders requiring a 15% or 20% deposit, many new home buyers have found themselves ‘priced out’ of the market. Finding enough money for a deposit has proven to be one of the biggest hurdles faced by first-time buyers.

Fortunately, help is at hand. Recent changes to lending rules mean that 5% deposit mortgages have been re-introduced for home movers and first-time buyers, increasing their chances of purchasing a property with more manageable deposit requirements. The government-backed scheme was announced as part of the 2021 budget and has been a breath of fresh air for many potential buyers who felt excluded by high deposit requirements. Most high street lenders are participating in the scheme to make home-buying more affordable and in the wake of the recent Covid19 pandemic, demand is high.

Depending on which lender is used, there are a few factors to consider that make the scheme even more appealing:

  • It is available to self-employed business owners
  • It can be used for new build properties
  • Fixed payment periods can be extended

As demands for homeownership are soaring and reports showing that many renters are saving to purchase a home, the scheme has been launched at an optimum time. Lenders that support the scheme will receive financial protection from losses provided by the government.  In a recent statement, the government reported that the new scheme had been launched to ‘fix our broken housing market’ and it could be ‘the biggest expansion of homeownership since the 1980s.’

Should you take advantage of the scheme?

If you have been waiting and saving to buy your first home then the 5% mortgage deposit scheme may be your pathway into homeownership. However, make sure to check interest rates and total monthly payments for affordability before signing on the dotted line. For some that are on lower incomes, this may be their chance to finally move from renting to buying, but if you can save a higher deposit it will almost always come with better interest rates.

The impact of coronavirus on the economy had all but eradicated 5% deposit mortgage loans from the lender’s portfolios, but with the launch of the new scheme, lenders have readily supported the move, offering mortgages that are backed with government support. 

Now that getting a 95% loan is much more accessible it could potentially open the floodgates to a homebuying spree. While this may be great for the economy and the individual buyer, there could be a downside. As home prices fluctuate up and down the market can be unpredictable, and with such a low deposit buyers could run the risk of ending up in a negative equity situation if the market takes a downturn. The low deposit amount can also mean that monthly repayments are relatively high, but possibly no higher than current rentals which are the highest level for decades. All things considered, this might just be the best way for first-time buyers to stop renting, start their homebuying journey, and purchase their first home.

Contact us if you would like further information or to book a valuation