5% Deposit Mortgage Scheme Launched To Help First-time Buyers

A new government mortgage guarantee scheme has launched this week, designed to help more first-time buyers purchase a home.

Under the new scheme announced in the Budget, lenders are now starting to offer mortgages to borrowers with just a 5% deposit. In a bid designed to encourage lenders to offer 95% loan-to-value mortgages, the government will provide a partial guarantee of 15% to compensate lenders if a borrower defaults on repayments.

The scheme is available to anyone purchasing a home up to the value of £600,000 – although buy-to-let properties and second homes do not qualify. It’s hoped that the scheme will boost the economy and the housing market and support first-time buyers as they step onto the property ladder.

High Street lenders such as Barclays, HSBC, Lloyds, Santander and NatWest are offering the new products this week, however, some lenders including Halifax and Barclays have stated that these products will not be available for new-build properties.

Chancellor Rishi Sunak commented: “Every new homeowner and mover supports jobs right across the housing sector but saving for a big enough deposit can be hard, especially for first-time buyers. 

“By giving lenders the option of a government guarantee on 95% mortgages, many more products will become available, boosting the sector, creating new jobs and helping people achieve their dream of owning their own home.”

Some of the two-year fixed deals have a 4% mortgage rate attached to them—for example, NatWest’s new 95% mortgages will start at 3.9%. However, analysts say that there may be cheaper deals available for buyers who can double their deposit to 10%.

Speaking on the BBC’s Today programme, Lloyd Cochran, head of mortgages at NatWest said: “It reflects the extra risk the bank is taking on. I think over the long term that is a pretty competitive rate for customers.

“One of the things we do is ensure that the customer can afford that rate. We also ensure the customer can afford that loan if interest rates were to rise.”

Eleanor Williams, from financial information service Moneyfacts, concluded: “With more lenders poised to launch deals for this sector of the market, [borrowers] level of choice should hopefully increase even further.

“Increased competition within the higher loan-to-value tiers will hopefully translate to more competitive rates for these borrowers.”