95% Mortgages – How Do They Work and Are They for Me?

Generation buy! How to play the Government’s fun new property game.

Score! You’ve landed on Piccadilly with free parking and a get out of jail free card. Oh, and what’s this new chance card just introduced? ‘A new government-backed 95% mortgage scheme that helps first time buyers or current homeowners secure a mortgage with just a 5% deposit’. Yes, you read that right. You can secure a mortgage with a mere 5% of the deposit saved. But why on earth would those Westminster back benchers agree on such a thing for the age old property game? Particularly in this current financial climate? Well, thanks to a rarely seen but relentless enigma known locally as Corona, lenders have tightened their money belts so hard that first time buyers have all but gone extinct without a board or silver dog to play with.

As you may or may not remember, in the Autumn of our discontent / pandemic, Mr Johnson hollered the words ‘generation buy!’ into the ether. This basically translates into the government wanting us all to stop renting and start moving into an abode that allows us to paint the goddamn walls for goodness sake. We think that’s his main objective, anyway. But what are the rules? What are the prizes? As always, we have questions for the game board just like you and as always, we have the answers.

Illustration of a couple looking at a house that they could potentially afford to buy using the 95% Mortgage Scheme.

Ladders not snakes

Whether you’re standing at the bottom of the property ladder in a sea of security deposits, pythons and rental agreements. Or a couple of rungs up looking to ascend, the new 95% mortgage is here to help you out of the snake pit. The 95% mortgage scheme is available for new applications until December 2022. It was introduced by the government, who are offering lenders a guarantee to cover 95% of the loan for properties with a value of up to £600,000. Not. Too. Shabby.

Big time lender top hats such as Barclays, HSBC and NatWest have signed themselves up in a flash, ready to offer fixed interest rate mortgages for five years or more. While the government guarantee is offered up to seven years. Worth noting: the lowest interest rates are still, on the whole, reserved for those who can provide larger deposits (40% or more). However, there are some pretty competitive deals around for the five percenters among us.

Scottie dog or wheelbarrow?

So who exactly is eligible for the scheme out of our motley crew of players? Well, as long as you’re an individual and not a company, not looking to rent out the property and it has been valued at £600,000 or less then you’re ready to play. What’s more, unlike the Help to Buy Equity Loan Scheme, the house doesn’t have to be a new build. Score! Remember that all the usual lending checks will take place, so make sure your credit score and finances are ship shape first as always. Interest only options aren’t available under the 95% mortgage scheme either, so you’ll be applying for a repayment based mortgage. So if this all sounds up your street, get your Racing Car token out and ready to move up the board my friend!

Photo of a farmhouse style kitchen with skylight that was recently sold here at Davies & Davies.

Game time. How to play

Okay, so you’ve all got your places and your orange squash to hand. It’s time to look into the details of the scheme. Firstly, to begin playing, your deposit needs to be between 5% and 9% of the property’s value. Secondly, you need to have an offer on a house accepted before applying for a loan. Thirdly, make sure to approach a lender that has opted in to our fun new game.

More rules and regulations to bear in mind before we begin coming up:

  1. Although it’s a government based scheme, the bank / lender will organise it all on the homeowner’s behalf So no direct government applications are necessary.
  2. The lender is liable to pay a commercial fee for each mortgage within this scheme.
  3. This fee will most likely hike up the overall cost to the homeowner, be it through product fees or interest rates.
  4. The game itself is designed to protect the lender, not the buyer.
  5. All other aspects of the mortgage will work in the same way as any other traditional mortgage.

Okay, so if that doesn’t put you off let’s crack on!

Wait, what if I have a larger deposit saved?

Well, look at you Ms Prepared. It goes like this: the higher that deposit number, the wider the mortgage choice and the lower the interest rates. So you’re onto a winner. But if you’re holding out on taking advantage of the 95% mortgage scheme to save a little more deposit, particularly whilst renting, it’s better to get out of the renter’s market and into buying mode. While you wait, pouring your hard earned cash into your landlord’s pockets, you’re also playing a risky game of ‘house price rise’ which isn’t fun to play let us reassure you. There are no sure fire paths to take in the property tournaments, and the rule books are hard to come by. But we can and will give you the best guidance when it comes to playing fair and getting the very best outcome for you.

A photo of a property currently available to buy at Davies & Davies estate agents.

Game anomalies

As helpful as the new scheme is, there are risks involved with low deposit mortgages. The housing market may be affected in terms of falling house values once the government withdraws their help in December 2022. What does that mean for your particular roll of the dice here? Well, your hand (house) of cards may significantly decrease once the scheme closes, and you may be left with a higher risk of negative equity. However, all is not lost Player 1. Chin up and eyes on the board. These government backed guarantees can also have a positive impact on property price hikes. The market may get a much needed boost and prices could increase. Rightmove alone has seen record highs of asking prices in April, reaching over £4,000 higher than the last record set in October 2020. While their website saw a huge increase in visits and ‘more houses sold within the space of a week than ever before.’ It’s a risk to take, but it’s a promising one.

As experts in the property game, we’re excited about the new scheme. It creates more opportunities for buyers who would otherwise be unable to find the larger deposits necessary to get on the property ladder in the first place. Other initiatives such as the stamp day holiday didn’t necessarily help all those looking to buy. Whereas this particular scheme is opening up the ladder for more potential buyers. If you have any more questions or concerns, why not give us a call? We’ll be happy to help you get the ball (or dice) rolling.

You might also be interested in some of our other articles. Including ‘How to Buy a Property as a Single Person’ or ‘Buying a Home When Pregnant Or Adopting’. 

Contact us:

alex@daviesdavies.co.uk – Lettings Director (contact for lettings and property management)

mark@daviesdavies.co.uk – Sales Director (contact for sales, new homes and chartered surveying)

020 3820 2492

Davies & Davies Estate Agents, 85 Stroud Green Road, London, N4 3EG

Article & images by Barefaced Studios

12 August 2021
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