Government’s new Mortgage Guarantee Scheme launches with a bang!
Last year saw the disappearance of 5% and even 10% mortgages from lenders, including the ‘usually depended on’ high street banks. This month 5% is back boosted by a government guarantee, which offers Generation Rent a foot in the door and has sent ripples of positivity up the chain.
As we’ve seen clear ties in the past year between the property market and an uplift in the British economy’s outlook, it makes sense that the Chancellor is putting in the work to ensure people can still undertake one of the most exciting steps in life - buying a home.
Whilst being able to afford a mortgage is key to buying a property, a major stumbling block for many first, and second-time, buyers who can prove affordability is still finding a lender who will take a risk on you only putting down a small deposit, such as 5%.
Low deposit loans were previously seen as a major risk to a lender because borrowers could end up in negative equity if house prices fall – meaning they owe more than their property is worth.
The Chancellor has now launched his revolutionary new scheme to give lenders more confidence and protection on small deposits, allowing more mortgage offers to flood the market, and finally giving access to many for the first time. From 19th April 2021, Lenders were able to purchase a Government Guarantee that compensates them for a portion of their losses in the event of foreclosure. All lenders under the scheme offer mortgages fixed for at least five years as part of their range of products, providing options for buyers with smaller deposits who want the security and predictability of a mortgage with a fixed rate over a longer term.
Chancellor Rishi Sunak said: “By giving lenders the option of a government guarantee on 95 per cent mortgages, many more products will become available, boosting the sector, creating new jobs and helping people achieve their dream of owning their own home.”
Surprisingly, Mr Sunak has not restricted this just to first-time buyers. This scheme is open to anyone, although there is a £600,000 limit on purchase prices.
The pandemic meant there were very few mortgages on offer at 95% loan to value - in fact in January 2021 it was said that there were only about eight deals available out of hundreds on offer which qualified. However, under this new scheme we have seen a huge increase in lenders now offering over 90% and 95% loans, already causing a flurry of excitement among local buyers.
The benefits don’t stop there though, as the first-time buyers’ rush predicts much more movement further up the chain, with second and third buyers more confident about making a move without threat of a fall through in the sales process.
Given that owning a home is still the only way in which you can make money tax free (as there is no Capital Gains Tax), this exciting latest development will undoubtedly enable many thousands of people currently renting to benefit from this wonderful investment opportunity, as well as fulfil a personal dream for many.
This is a welcome and unprecedented Government scheme that brings fantastic news to anyone who can prove affordability but still struggles to raise a significant deposit.
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