5% Deposit Mortgages – How do they work?

Posted on March 15th, 2021, 10:27 am

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 mortgages (meaning the loan is 95% of the property’s value).

These 95% mortgages will operate as any standard mortgage would for you as a buyer. There will be no difference between a 95% mortgage offered through this scheme and a 95% mortgage offered outside of this scheme.

For the mortgage lender however, the scheme guarantees that the Government will cover some of the cost if the lender lost money. For example, if the borrow 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 scheme will run from April 2021 until December 2022.

Can I take part?

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 home movers. The eligibility criteria is:

• You must be buying a main residential home in the UK. These mortgages can’t be used for second homes or buy-to-let properties.

• The property value must be £600,000 or less.

• You must have a deposit equivalent to between 5% and 9% of the properties purchase price.

• You must apply for a capital repayment mortgage. This means that you won’t be able to appl for an interest-only mortgage.

• You’ll need to pass a lenders normal mortgage affordability criteria.

Which lenders will be offering these mortgages?

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, these include Lloyds, Natwest, Santander, Barclays and HSBC. Other lenders are expected to follow including Virgin Money.

How do I get one?

Details haven’t been published yet about how to apply for these mortgages, but it’s expected that the process will be the same as it is for any standard mortgage. When searching for the best mortgage deal for you, it’s always advisable to speak to a mortgage broker about what type of mortgage is best for your situation.

If you have any further questions about 5% deposit mortgages or would like to speak to our recommended financial team, please feel free to contact our property professionals on either 01279 898 383 or info@forgehomes.co.uk.

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