More options for low-deposit buyers with return of 5% & 10% buyers

2020 was a tough year for first-time buyers, with limited mortgage deals available. However, they can now look forward to a brighter 2021, together with those who have low deposits, with the re-introduction of the 95% mortgages and the range of 90% mortgages vastly increasing.

Due to concerns around mortgage affordability and the wider financial issues raised by the pandemic, higher LTV (loan to value) mortgages became sparse in 2020 in what was a tough financial year for everyone. Money Expert wrote that there was just one deal available at one point for those with high deposits – at 90%. However, as optimism has grown and we have tip-toed towards normality, more and more banks have been willing to open their doors for those with lower deposits. 

Now buyers have a boost with a number of options available to them depending on the route they wish to take towards owning their own home. Previously, Boris Johnson had stated numerous times that he wanted to turn “Generation rent into Generation buy”. But, given the pandemic, this had been knocked down his & the Conservative Party’s lists of priorities. With lockdown measures slowly easing and the world attempting to return to normal, these optimistic statements have now been backed up with some action from the UK Government.

Firstly, 5% of mortgages became completely obsolete during 2020. This was because of the risk of negative equity – banks worrying that due to failed repayments and potential house price drops, that people would owe the bank more than their house was worth. The Government has encouraged lenders to return to the market for 5% mortgages by offering to underwrite and support banks. This means that if people do fall into negative equity, the Government will cover the bank’s losses, therefore reducing the bank’s risk and allowing them to return to the market. 

As well as this, the Government’s Help to Buy equity loan is set to continue. This scheme allows borrowers to also lend up to 20% (40% in London) of their house value from the government and pay it back interest-free for the first 5 years. There are a few caveats with this option, one being it is only available on certain new-build properties, and the Government will share in some of your house profit if you decide to sell. However, it is an option open to those looking at properties they may not be able to afford in other circumstances.

So the above, paired with plenty of standard mortgages with just 5% and 10% deposits – and more being added to the market every week – is finally shining a light at the end of the tunnel for those who have wanted to get their foot on the property ladder. Of course, there are other considerations if you are buying your first home, make sure to read our previous blog where we cover the top tips for buying your first home but as a whole, buying your first house just got a lot easier than it has been in the past 12 months.

Should you wish to explore your options, or wish to have a no-obligation chat, contact our resident mortgage expert Ashley King on 01282 452255 or ashley@financialaffairs.co.uk 

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