5% mortgages: More expensive but there are still options

If you’re interested in taking up the government’s 5% deposit mortgage scheme but worried it might prove too expensive, there are some ways to reduce your costs.

What is a 5% mortgage?

Knowing how difficult it is for buyers without access to a weighty deposit, to get on the property ladder, the government introduced the 95% mortgage guarantee scheme to make it easier to buy a new home.

The scheme is open to anyone who has a 5% deposit, including first time buyers.

Under the scheme, the government will act as a guarantor for your mortgage which must be a repayment mortgage. That means if you can no longer afford the repayments on your home, the government will repay some of the costs if there is any shortfall once the property is sold.

With this concrete assurance that they won’t incur financial losses, mortgage lenders are now willing to lend buyers a whopping 95% of the cost of the property.

Why is the government offering 5% deposit mortgages?

The government introduced the scheme in April 2021 as part of its Covid-19 recovery plan. The purpose of the scheme is to encourage more lenders to offer mortgages to those with limited access to the funds for a deposit.  

Are 95% mortgages available for any property?

These government backed mortgages are available for the purchase of a residential home worth up to £600,000 in the UK. The home cannot be a new build or intended for use as a second home or rental. You will need a deposit of between 5 – 9% of the value of the property.

When does the scheme end?

The scheme ends on the 31st December 2022.

How can I make savings?

If you can add an extra 1% to your deposit to take it to 10%, you’ll fall into a different bracket and qualify for a lower rate of interest which could improve your interest rate by as much as 1.01%, taking you from a 4% to a 2.99% interest rate.

Similarly, if you could edge the deposit a little further to 20% or 25% you could reduce your interest even further, meaning significantly lower payments to make each month.

Get in touch with us today to find out more about how you could reduce your monthly costs.

May 2021