MORTGAGES
5% Deposit Mortgage Guarantee
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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).
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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.
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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).
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The scheme will open April 2021 and run until December 2022.
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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.
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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.
Low deposit mortgage sceme
A low deposit mortgage scheme is an excellent option for homebuyers who may not have a large sum of money saved for a down payment. These schemes allow individuals to secure a mortgage with a smaller deposit, often as low as 5% or 10% of the property’s value, making homeownership more accessible. With a low deposit mortgage, you can take the first step toward buying a home without waiting years to save up a larger deposit. Many lenders now offer these schemes, providing competitive interest rates and flexible terms to suit a variety of financial situations. Whether you’re a first-time buyer or looking to move, a low deposit mortgage scheme can be a great way to get started in the property market.
low deposit mortgage scheme UK
The low deposit mortgage scheme UK is a popular solution for aspiring homeowners looking to get on the property ladder with a smaller upfront cost. In the UK, many lenders now offer mortgages with deposits as low as 5%, making homeownership more attainable for first-time buyers and those with limited savings. These schemes are designed to help buyers secure a mortgage even if they can’t afford the standard 20% deposit typically required. With the low deposit mortgage scheme UK, you can access competitive interest rates and flexible repayment terms, making it easier to invest in your first home. Whether you’re looking for a new home or refinancing, this option provides an affordable path to homeownership in the UK.
Mortgage guarantee scheme
The mortgage guarantee scheme is a government-backed initiative designed to help first-time buyers and those with a smaller deposit secure a mortgage. By offering lenders a guarantee on a portion of the loan, this scheme enables buyers to access mortgages with as little as a 5% deposit, making homeownership more accessible. The mortgage guarantee scheme aims to increase the availability of affordable housing options, particularly for individuals who may struggle to meet the traditional 20% deposit requirement. Whether you’re a first-time buyer or looking to move, this scheme can provide you with the financial support needed to step onto the property ladder with confidence.
How to Buy a House with a 5% Deposit: A Step-by-Step Guide
Dreaming of owning your own home but worried about saving a large deposit? The good news is that it’s possible to buy a house with a 5% deposit in today’s market. While many buyers traditionally needed a 20% deposit to secure a mortgage, a growing number of mortgage schemes are now offering options for buyers to purchase homes with a significantly smaller upfront cost. In this guide, we’ll explore how you can buy a house with a 5% deposit, the benefits of this option, and the key steps to make your homeownership dream a reality.
What Does a 5% Deposit Mortgage Mean?
When you buy a house with a 5% deposit, you’re only required to put down 5% of the property’s value, with the remaining 95% covered by the mortgage. For example, if you’re purchasing a house worth £200,000, a 5% deposit would amount to £10,000, and you would borrow £190,000 from the lender. This significantly lowers the initial financial barrier compared to traditional mortgages that typically require a 20% deposit.
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How to Qualify for a 5% Deposit Mortgage
In the past, saving for a 20% deposit was seen as a necessary step in securing a mortgage. However, with the introduction of government-backed schemes and more flexible mortgage products, it’s now possible to buy a house with a 5% deposit. Here are some of the key requirements:
Credit Score: Lenders will usually require a good credit score to ensure that you can manage the mortgage repayments. A strong credit history will improve your chances of being approved.
Stable Income: You’ll need a steady income to demonstrate your ability to repay the mortgage. Lenders typically assess your monthly earnings and debt-to-income ratio when considering your application.
Government Schemes: The UK government offers various schemes, such as the Help to Buy and Mortgage Guarantee Scheme, which make it easier to buy a house with a 5% deposit. These programs help lower the risk for lenders, making it more likely they’ll approve your mortgage.
Affordability Assessment: Lenders will assess your ability to afford monthly mortgage repayments. Be prepared to show proof of your income, savings, and any other relevant financial details.
Benefits of a 5% Deposit Mortgage
Get on the Property Ladder Sooner: A major advantage of a 5% deposit mortgage is that it allows you to purchase a home without needing years of saving for a larger deposit. This is particularly beneficial for first-time buyers who may be struggling to save up a significant amount.
Lower Initial Costs: With a 5% deposit, you can avoid the large upfront costs associated with a 20% deposit, freeing up more funds for other expenses, such as moving costs or home improvements.
Take Advantage of Lower Interest Rates: Many lenders now offer competitive interest rates for 5% deposit mortgages, meaning you can secure an affordable loan without paying excessive interest over time.
Government Schemes That Help You Buy a House with a 5% Deposit
The UK government has launched several initiatives to make homeownership more accessible. Two key schemes are:
Mortgage Guarantee Scheme: This scheme, introduced in 2021, allows buyers to buy a house with a 5% deposit by providing lenders with a government-backed guarantee. It increases lenders’ confidence in offering low-deposit mortgages, making it easier for buyers to access affordable housing options.
Help to Buy Scheme: Although the Help to Buy equity loan scheme is ending in 2023, it has helped many buyers purchase a home with a smaller deposit. Under this scheme, you could borrow up to 20% (or 40% in London) of the property’s value from the government, requiring just a 5% deposit from you.
Things to Consider When Buying a House with a 5% Deposit
While a 5% deposit mortgage makes homeownership more accessible, there are a few factors to keep in mind:
Higher Monthly Payments: With a smaller deposit, you’ll be borrowing a larger sum, which means your monthly repayments will be higher. Make sure your budget can comfortably accommodate these costs.
Private Mortgage Insurance (PMI): In some cases, if your deposit is less than 10%, lenders may require you to pay for PMI, which protects the lender if you default on the mortgage. This can add to the overall cost of your loan.
Less Equity: A smaller deposit means you’ll have less equity in your home, which could make it harder to move if property prices fall.
Loan-to-Value Ratio: Lenders will look at your loan-to-value (LTV) ratio, which compares the amount you’re borrowing to the value of the property. A higher LTV can sometimes mean a higher interest rate, so it’s essential to shop around for the best mortgage deal.
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.
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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.
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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.
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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.
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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.
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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?
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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.
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Valuation Fees
You will need to have your chosen property independently valued, again, these fees will vary depending on the lender chosen.
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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.
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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
Sharmila Rumpa2024-05-28Excellent and professional service, wanted to call out Bhavna Gover especially, she helped me to sort out a Ltd Company buy to let mortgage. She's very thorough in her work. Please ask for Bhavna if you need a mortgage in future, she will be happy to help for sure.
Kash Anis2024-05-23We approached Mortgage matchmakers regarding to get an options as we alreday tried few brokers before.Mohit introduced Bhavna which helped us out through out our journey.We felt it was difficult as our situation was bit tricky, but Bhavna worked out the best resoultion and sort this out. We have no words to say thank you, as it was amazing support from Bhavna and got the mortgage offer. Bhavna was fantastic,friendly and very passionate person, she is very professional Mortgage Advisor. Once again I would like to say Thanks so much for helping through out my journey to get mortgage for my new house.
Larushhh O2024-05-18It was a pleasure working with Paul over the last few months with my remortgage. He took away the stress of remortgaging with his professionalism and patience till the deal was finalised. I highly recommend him as a broker. Thanks for your support and help once again.
Aromes Bienmaison2024-05-15Paul was very helpful and provided a great guidance throughout the whole process
Shalaka2024-05-14We couldn't have asked for a better mortgage advisor! Mohit has been an absolute asset, always there when we had a question, and believe me, we had plenty! Being first-time buyers, his guidance was invaluable. What we appreciated most was his honesty and the fact that he never made us feel rushed into any decision. We're still in the process, but we already feel confident with his support. Totally recommend him to anyone in need of mortgage advice!
Dinesh Johnson2024-05-13Mohit was simply brilliant and helped us to understand all the options available in the market and choosing the best and importantly the right product for our need. Mohit is very efficient, he goes out of his way to help his clients and keep his client’s interest at top of his priorities. He was very professional and knowledgeable, would certainly don’t think twice to get his service in the future. I would highly recommend him to anyone who needs advice and support in sorting their mortgages. Thank you soo much Mohit for your hard work and support in sorting our both residential and BTL mortgages! Tharaka & Dinesh
Bagya P2024-04-30If anyone looking for hassle-free mortgage process, then I would suggest to discuss with Mohit. Mohit explained the process more in detail, assessed the situation very well and gave perfect suggestions to get the process done. Also, he closely connected with Solicitor and made the whole process easy. Additionally, I would like to thank Bhavana for her exceptional work. She tried many options to get the better deal from different Vendors. She explained all my queries on time and appreciate her professionalism. Thanks a lot once again Mohit and Bhavana for all your support.
Oliver Harris2024-04-24Mohit was a great help with finding my first mortgage. He talked through all options clearly and found the best deal to suit my needs. I'd thoroughly recommend using his services.
Veronica Ihonor2024-03-03The team was very professional with spontaneous delivery in line with agreement. Well done guys
Ogechi Eke2024-01-14If you’re looking for a professional mortgage broker who actually goes above and beyond his role then look no further. Ankur Daru is your main man. He is extremely helpful and knowledgeable. Even when the interest rate dropped for my lender, without prompting, he sent me an updated deed. There are so much more I could write but I’ll sum him up in a few words: Professional, knowledgeable and helpful. Thank you for securing the deal for me Ankur! I look forward to the next one! Ogechi
