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Government Launches 5% Deposit Scheme, Industry Reacts

A new scheme from the government to help buyers through 5% deposits went live yesterday.

The scheme, which was first announced in the most-recent Budget, will provide 5% of the deposit for the purchase of homes worth up to £600,000. In a statement, the government said that it would provide an ‘affordable route to home ownership for aspiring homeowners’.

Housing Secretary Robert Jenrick said: “The new mortgage guarantee scheme which comes into effect today will give providers the confidence to lend and help families and young people get on the property ladder without the prohibitive burden of a large deposit. Despite the challenges faced over the past year, the government has intervened to protect jobs, support builders and buyers to help keep the housing market healthy. Today’s 95% mortgages launch further strengthens our commitment to build back better from the pandemic.”

Jenrick added: “We want to match the ambitions of aspiring homeowners up and down the country.”

Reaction to the scheme across the industry has been mixed. Trussle’s head of mortgages Miles Robinson said the launch is positive for buyers with low deposits and it offered a more-accessible route to homeownership. He said that other schemes existed that may more financially-beneficial for buyers.

Robinson added: “With lenders still viewing the high loan-to-value market as risky, interest rates on the new 95% LTV deals are more expensive, with some close to 4%. In comparison, mortgage rates available to those with a 25% deposit can be around 1.19%.  Therefore, if you’re able to spend some time saving more towards your deposit, you could secure a mortgage deal with a more competitive rate in the future. If you’re a first-time buyer hoping to get onto the property ladder, it’s worth spending some time reviewing your options. There are other homeownership schemes available for those with smaller deposits, such as family mortgages, Help to Buy, and Shared Ownership.”

Chesterton’s head of research Nick Barnes was more sanguine. He said: “The market is likely to receive a further boost with the commencement of the government’s new Mortgage Guarantee scheme which lenders will operate from today. With 46% more properties available to buy at the end of March than a year ago, buyers will have a great chance of finding their ideal property.”

The company’s CEO Guy Gittins predicted little long-term effect on house prices. He said: “To date, it has been the most active market we have seen since 2006 based on the volume of property transactions, conducted viewings and the number of buyers entering the market. Equally, we have seen a steady increase in properties coming to the market which, in the long run, will result in property prices staying pretty flat.”

Others, however, sounded notes of caution. Intermediary Mortgage Lenders Association executive director Kate Davies questioned the low number of lenders signing up to the scheme. She said: “The launch of the Government’s new mortgage guarantee scheme will open the door to a greater number of mortgage products suited to borrowers with a 5% deposit. However, many may be surprised to see that just a few lenders have said they will offer these mortgages and that some of those who have signed up have made it clear that their products will not be available for new-build properties. The scheme excludes applicants who have any form of credit impairment, and also lenders who securitise loans. When these factors are added to the additional costs associated with the scheme, many lenders are preferring to offer their own 95% loan to value mortgages.

She added: “To some extent this is not a surprise: the last time Government offered support for high LTV mortgages, take-up was low. But the fact that the new guarantee scheme is now available has clearly given lenders more confidence to return to this part of the market – and that is a clear benefit.  We will need to wait to see how borrowers respond this time around.”

The National Federation of Builders (NFB) said that the scheme would give a ‘timely mortgage boost for homes under £500,000’, but was restricted to 4.49 times annual income and to those who have clean credit records. The federation also sounded the alarm that the supply of housing had to meet the demand.

NFB director Richard Beresford said that such measures only heated up the housing market. He added: “The ‘planning for the future’ whitepaper needs to be turned into a bill as soon as possible, otherwise, demand will continue to outstrip supply and housing will become even more unaffordable. If it needs short term supply solutions, the NFB is ready with a stack of deliverable recommendations.”