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Your home may be repossessed if you do not keep up repayments on your mortgage.

5% Deposit Mortgages – How they work?

A new mortgage scheme to enable lenders to offer more deals or homebuyers with a low deposit or limited equity has been announced in the Budget. The Chancellor Rishi Sunak unveiled details of the scheme, which is designed to help those with a 5% deposit get accepted for a mortgage with the Government backing part of the loan.

How will the scheme work?

Under the scheme, first-time buyers, home movers and previous homeowners with a 5% deposit will once again have access to 95% Loan to Value (LTV) mortgages (meaning the loan is for 95% of the property’s value).

 

The 95% LTV mortgage will operate as any standard mortgage would for you, the buyer. As far as you are concerned, there will be no difference between a 95% mortgage offered through this scheme and a 95% mortgage offered outside this scheme.


For the mortgage lender however, the scheme guarantees that the Government will shoulder some of the cost if the lender lost money. Eg, if the borrower had failed to keep up with mortgage payments and the property was repossessed, but the subsequent property sale did not recoup the outstanding mortgage amount.

 

The Government would cover 95% of any losses a lender made on the amount of the mortgage above 80% loan-to-value. Eg, on a £100k property with a 95% mortgage, the lender would not have a Government guarantee on the first £80k, but the Government would then guarantee 95% of the remaining £15k).

 

The scheme will open April 2021 and run until December 2022.

 
The scheme is similar to the 5% Help to Buy Government-backed mortgage scheme, which operated between 2013 and 2017. Any lender that is taking part in the scheme will have to offer a five-year fixed mortgage as part of their range of 95% LTV products.

 

Since the onset of coronavirus, 95% mortgages have all but disappeared from the market – leaving many potential homeowners stranded. This scheme is therefore designed to encourage more lenders to re-enter the 95% market.

Which buyers can take part in the scheme?

Any buyer with a small deposit can get one of these Government-backed mortgages. They are NOT restricted to first-time buyers, but can be used by anybody buying a main home, including previous homeowners and homemovers.

 

 

In brief, here is the eligibility criteria:

  • You must be buying a main residential home in the UK. So these mortgages can’t be used for second homes or buy-to-let properties.
  • The property must be worth £600,000 or less. You won’t be able to apply if the property costs in excess of this.
  • You must have a deposit equivalent to between 5% and 9% of the property’s purchase price. That means you’ll have a mortgage LTV between 91% and 95%.
  • You must apply for a capital repayment mortgage. This means that you won’t be able to apply for an interest-only mortgage.
  • You’ll need to pass a lender’s normal mortgage affordability criteria.

What kind of mortgage rate can I get?

Details about what kind of mortgage rates you can get with these 95% mortgages are yet to be published. Remember, the lower your LTV, the better rate you’re likely to get so these mortgages are unlikely to be cheap.

Are these mortgages any good?

These low deposit mortgages should not be seen as special mortgages per se, rather they are simply one option for those struggling to get onto the housing ladder. Another option to consider if you’ve only got a small deposit is the Help to Buy Equity Loan.

 

Ultimately, this new Government-backed scheme was launched with the intention of encouraging lenders to start offering 95% mortgages again – something many were already offering before the coronavirus pandemic but has not been since.

 

There’s no advantage for a homebuyer to take out a 5% deposit mortgage via this scheme over a normal 5% deposit mortgage, so simply look at which is better for you. However, once lenders are starting to launch 5% deposit mortgages via this scheme, it’s likely there will be more normal 5% deposit mortgages, giving you more choice.

 

Whether a low deposit mortgage is right for you though will depend on your individual circumstances. Remember, the rates tend to be much higher if you’ve got less than 10% deposit so if you can push for a 10% deposit then you’ll get access to a cheaper mortgage. Mortgages typically become cheaper at 90%, 80%, 75% and 60% LTV.

 

If you’re between 18-39, a Lifetime ISA (LISA) could help you save towards a more substantial deposit. A LISA lets you save up to £4,000 a year towards your first home or retirement, and gives you a cash bonus of up to £1,000 a year on top.

Which lenders will be offering these mortgages and how do I get one?

If getting a 95% mortgage is right for you, several of the UK’s biggest mortgage lenders have already signed up to take part in the scheme:

Lloyds, Natwest, Santander, Barclays and HSBC will offer these mortgages from April.


Other lenders are expected to follow, including Virgin Money. We’ll update this section when we know more.

Your home/property may be repossessed if you do not keep up repayments on your mortgage.
Some Buy-To-Let Mortgages are not regulated by the Financial Conduct Authority.

What fees are involved with buying a home?

 

Arrangement Fees

Most mortgage lenders charge an administrative fee for the arrangement of the mortgage. This will vary from lender to lender. You may even find that some specialist lenders offer no arrangement fees for those in certain jobs.

 

Valuation Fees

You will need to have your chosen property independently valued, again, these fees will vary depending on the lender chosen.

 

Legal Fees

The mortgage application process requires the appointment of a solicitor, who will arrange conveyancing and local authority searches, usually payable directly to the solicitor.

 

Stamp Duty

Under normal circumstances, Stamp duty is due on the purchase of all properties and is based upon the value of your home, amongst other things. First Time Buyers currently benefit from an exemption on Stamp Duty on purchases up to £300,000.

How can Mortgage Matchmakers help First Time Buyers?

Buying your first home can be intimidating.


From trying to establish which type of mortgage is best suited to you, through to finding a lender offering competitive mortgage rates to First Time Buyers. Qualified and experienced Mortgage Brokers can be comforting and reassuring throughout the process of making life-altering decisions.


Even the most confident buyer, however, can benefit hugely from Mortgage Brokers’ advice. We have a wide market view, which gives us access to mortgage deals that you won’t find on the high street. This means that we can not only find you the most suitable mortgage deals available but are able to divert your efforts towards those lenders most likely to accept your application.

Your home/property may be repossessed if you do not keep up repayments on your mortgage.
Some Buy-To-Let Mortgages are not regulated by the Financial Conduct Authority.

Happy Clients

barbara kisolo
barbara kisolo
02/10/2023
I was introduced to Mortgage Matchmakers Limited by a friend who had used them before. From the moment we contacted Paul, he walked the journey with us until exchange of contracts. Paul was reachable 7 days a week and would answer his calls even outside the normal working hours. He was constantly updating and advising us on each step of the way including engaging the solicitor severally when things stalled. He provided useful advice whenever we felt like giving up. The fee was far less than what these guys offer and Paul was so patient with us. We are glad we chose Mortgage Matchmakers. Thank you so much Paul. We can't thank you enough.
Suman Pandey
Suman Pandey
19/09/2023
I cannot express enough how grateful my family and I are for the exceptional service provided by Bhavna Grover during our mortgage approval process. In just two short days, Bhavna worked tirelessly to help us secure our mortgage, and her dedication and expertise were truly outstanding. What truly sets Bhavna apart is her unwavering support and her wealth of knowledge in the field. She patiently and thoroughly explained every aspect of the mortgage application process, providing us with invaluable advice that allowed us to make informed decisions. Bhavna's friendly and easy-going demeanor made the entire process feel seamless, and we genuinely enjoyed working with her. Throughout our interactions, Bhavna demonstrated a high level of professionalism and competence. But beyond her professionalism, Bhavna's personal touch was what made our experience truly exceptional. She made us feel comfortable, and her ability to explain complex concepts in a language we could easily understand was greatly appreciated. She was not just a mortgage expert but also a trusted advisor and friend. Thank you, Bhavna Grover, for going above and beyond to help us achieve our mortgage goals.
Chetna
Chetna
06/09/2023
Fantastic service! Mohit and Bhavna were super efficient & quick - more importantly, they were able to get me a great mortgage rate. I loved that they were so responsive and I was able to call/message anytime and they would respond almost immediately. I'm so happy with their service and would highly recommend them!
Tim Bashforth
Tim Bashforth
17/08/2023
If I may start by saying I never leave reviews but in this instance I felt compelled to. As this was my first time getting a mortgage it felt quite daunting but from the first time speaking to Mohit he put my mind at rest and talked me through the process. When I had concerns or questions he was just a phone call away to give an answer and was always happy to help even after three calls in a row when I had forgotten some of my questions. He made the process of getting my mortgage a stress free experience and I would strongly recommend Mortgage Matchmakers to everyone. To be honest five stars just isn't enough! my experience couldn't have been any better, if you are looking for a mortgage adviser look no further and give them a call, you won't be disappointed.
Ayan Sengupta
Ayan Sengupta
10/08/2023
Very informative discussion with Mortgage Matchmakers. Mohit is really helpful and willing to go the extra mile in assisting clients depending on their circumstances.
Diana Terence
Diana Terence
24/07/2023
Mohit thank you for sorting our buy to let mortgage. You've been excellent in giving us good options and advise on terms. Thanks again
Kam Zaman
Kam Zaman
09/07/2023
Paul Asare was fantastic he kept me updated all the time and explained things clearly. I’d recommend this company a lot they were great and gave me the best deal.
Emi
Emi
08/07/2023
I remember 2 years ago I was in a difficult situation in my life and I was looking for a good mortgage advisor. I searched online and Mohit's name came up. I read all his reviews and decided to give him a chance. So we met and OMG, Mohit is such a warm person with such a positive attitude, he told me all the possible options that I had and advised me the best choices for me. But unfortunately things went wrong in my personal life, so I didn't contact Mohit for another 2 years . After 2 years I was afraid to call him again and ask for help with my mortgage (because of last time) but Mohit helped me out again and he was so polite and professional. He tried his best, he was always in contact with me and I had my mortgage offer within a week !!!!!!! Honestly I am so happy I returned to Mohit, he helped me with everything, advice on things and I finally got my mortgage with my name only and it only took him a week! I really couldn't believe things happened so quick 😊 Mohit did something which other brokers couldn't ! I've been told I can't get a mortgage on my own but here I am and I got one with Mohit's help 😊 I will always recommend Mohit to my friends if they need help with their mortgages. Thank you Mohit for everything 🙏
Anthya Fernandes
Anthya Fernandes
12/06/2023
Mohit and Bhavna has been a huge help in my buying process. As a first time buyer and with rates changing all the time due to the economic uncertainty, I've been more than a little out of my depth, and Mohit and Bhavna has done a fantastic job of making the entire process simple to understand, straightforward, and stress-free. For the peace of mind that has given me alone, I could not recommend them highly enough.
Jaideep Pathak
Jaideep Pathak
11/06/2023
Mohit has been extremely professional, responsive and quick in helping me find a great offer. The entire process was seamless and I was surprised how quickly I managed to get an offer. Mohit cares for his clients and patiently addresses all questions. I would highly recommend his services.