After an interruption during the pandemic, mortgages for buyers with a 5% down payment are making a comeback. Greg Cunnington of Alexander Hall explains how you can get any of these offers and what boxes you need to tick to be eligible
In last month’s budget, the government confirmed a new mortgage guarantee program to bring mortgage options back to buyers with a 5% down payment. You can read more about this in my last column.
This program is very similar to the Help to Buy 2 program (not to be confused with the Help to Buy equity program) which was in place from 2013 to 2016.
Essentially, it is a government insurance policy that protects lenders who offer loans for 95% of a property’s value against the risks associated with possible future declines in house prices. This gives mortgage lenders the confidence to lend to buyers with a 5% down payment.
The government has confirmed that this new mortgage guarantee scheme will be introduced in April, with a tentative date of April 19. Several major mortgage lenders have been confirmed to launch mortgage products on this program.
These included Lloyds, NatWest, Barclays, Santander and HSBC who have pledged to launch the program next month, Virgin Money is expected to follow shortly thereafter.
The return of 5% deposit mortgages
This confidence in the market has seen some mortgage lenders launch new mortgage products for buyers with a 5% down payment. already.
These lenders are not using the government’s mortgage guarantee program, they are just going back to offering mortgages to those with a 5% deposit like they did before the pandemic, and as such they were able to offer these loans. products before the start of this program.
We’ve seen Accord Mortgages, Bank of Ireland, Skipton Building Society, Coventry Building Society, Aldermore Bank and Buckinghamshire Building Society coming back with mortgage products for buyers with a 5% down payment. Meanwhile, TSB has confirmed that it will also launch this week.
Data from Moneyfacts shows that since the government confirmed the creation of the mortgage guarantee program, mortgage product options for buyers with a 5% down payment have increased six-fold.
As of March 1, five specialized mortgage offers were available at 95% loan-to-value ratio (LTV) that could be used either with the approval of a guarantor or reserved for local borrowers of regional real estate companies.
Since the Chancellor’s budget announcement on March 3, six lenders have contributed 5% of mortgages, bringing product availability to 29, according to Moneyfacts.
However, compared to the number of trades in March of last year when there were 391 trades available, this market still has a long way to go before recovering.
Most of those lenders who came back with mortgages for buyers with a 5% down payment are either only accessible through an intermediary or currently only offer the 95% mortgage products through intermediaries.
As such, you need to make sure you speak to an intermediary to make sure you are getting the best product available on the market.
You can consult the best offers available now on our site.
How does this benefit me?
This is great news for many buyers who were unable to purchase due to a lack of availability of mortgages with a 5% down payment, or for those who were previously limited to using the loan program. participatory Help to Buy, which is available to people purchasing new construction. properties only.
It could also be a positive option for buyers who were previously looking to put down a 10% down payment, but ideally would like to keep some money saved for the work or renovation of the property they are buying. These 5% deposit options make it an option again.
The stamp duty holiday has also been extended in the budget. The existing stamp duty holiday was introduced in June last year as a measure to boost the housing market after it closed during the first foreclosure.
This meant for buyers that the zero stamp duty band, the minimum purchase price at which stamp duty is eligible, has increased from £ 125,000 to £ 500,000. This meant the buyer had the potential to save up to £ 15,000 on their transaction.
The government has now confirmed that this stamp duty holiday is extended until June 30. They also confirmed that this zero rate bracket will then be set at £ 250,000 until September 30, providing an added benefit to buyers who finish between July 1 and September 30.
So, for those of you who have a 5% down payment, not only can you now access mortgage options again, but there is still time to take advantage of the current stamp duty holiday.
Pay attention to the criteria
Lenders who have launched new 5% deposit mortgage products have done so with narrow criteria because they are taking a soft approach to re-enter this market.
The restrictions on the criteria vary widely from lender to lender, so if you are planning to buy with a 5% down payment, it is essential that you speak to an intermediary who can access all of these lenders so that they can browse the options for you.
Some of the criteria restrictions to watch out for:
- Some of the options are reserved for first-time buyers
- Some lenders only lend on houses, not on apartments or new properties
- Most lenders cap at 4.49 times your income (however we have access to a lender who can lend up to 5.5 times your income)
- Some lenders only offer fixed rates for five years, so you should be sure to take advice to confirm that this would be right for you.
- Interest rates are higher than current mortgages available to those with a 10% down payment, and the criteria are a bit more restrictive in terms of maximum borrowing requirements and credit score. As such, it is crucial that you seek advice from a mortgage intermediary on the options available to you.
You can see for yourself by clicking here how much you can borrow. Or for a more specific assessment, please contact us to speak directly to one of our advisors.
Greg Cunnington is Director of Lender Relations and New Homes at Alexander Hall
THINK CAREFULLY BEFORE INSURING OTHER DEBTS AGAINST YOUR HOME.
YOUR HOME MAY BE TAKEN OVER IF YOU DO NOT CONTINUE TO REPAY YOUR MORTGAGE OR ANY OTHER DEBT SECURED THEREOF