Lockdown and Mortgages
The spring of 2021 has been characterised by months of frantic activity fuelled by stamp duty tax breaks. However, this has resulted in some uncertainty as to what the markets will be like when lockdown restrictions are lifted.
This is good news for this first-time buyer; the rush has created some changes to the mortgage market, as there will be a few new options now available. This change has bought about the 5% deposit. This is because of a government scheme to bring back 95% home loans, which are in action as of April.
When the pandemic hit 95% mortgages took a hit and they could scarcely be found. However this is not the case now that lockdown is starting to ease. As of April 15th, eight banks and building societies will offer 95% deals, including the Bank of Ireland. From April 19th, banks such as Lloyds, Santander, NatWest, Barclays, and HSBC will be offering these deals, as announced by Rishi Sunak.
From March this new scheme will give banks and building societies the opportunity to buy a guarantee on the riskiest portion of the mortgage – the bit between 80% and 95% loan-to-value. The government will protect this portion of the lender’s losses if a home has to be recovered after a property crash.
Although ideal for some, 95% mortgages will not solve the problems of buyers in areas where house prices are higher. Before extending a property loan, a lender will check that you can afford the monthly repayments.
The average deposit for a first-time buyer on a 95% mortgage deal is £11,087, with the average salary being £46,800. This is according to an analysis by the law firm Quittance Legal Services. However, the in London the money required is much higher at £21,682 and £91,500 correspondingly. Buyers who earn less need to acquire a bigger deposit to pass the affordability checks done by the lenders.
The more that a buyer can put down as their deposit the lower mortgage rates tend to be. Consequently there are benefits to applying for mortgages with lower lending percentages. Therefore, for many the 90% mortgage allows for an easier step onto the property ladder than deals that require higher percentage deposits, whilst also often giving slightly better rates than 95% mortgages.
R Jones (10.04.2021), First-time buyers: how you can get a foot on the property ladder, The Guardian, Accessed: 17.05.2021 https://www.theguardian.com/money/2021/apr/10/first-time-buyers-how-you-can-get-a-foot-on-the-property-ladder