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New 95% mortgage scheme: How does it work and which banks are offering them?


The new 95% mortgage scheme is aimed at helping first time buyers get onto the property ladder. (Picture: Getty)

If you’ve been trying to buy a home but haven’t yet saved up enough money for a big deposit then the new 95% mortgage scheme, announced in the Budget and launching from today, April 19, could help.

The new policy, which is primarily targeted at first-time buyers, aims to help people get on the property ladder amid record-breaking rises in house prices across the UK.

The new 95% mortgage scheme means that prospective buyers may be able to purchase a home with just a 5% deposit.

How does the new 95% mortgage scheme work?

A 95% mortgage means you can borrow up to 95% of the property price from a lender. The remaining 5% is covered through your deposit.

The scheme, which is only available in England for now, will be available to anyone buying a home costing up to £600,000. It is not available for those purchasing a buy-to-let property or second home.

As for the government’s role in the scheme, they are offering a partial guarantee to compensate banks if the borrower defaults on repayments.

Credit scores will need to be ‘excellent’ rather than just ‘good’ for buyers to get a 95% mortgage. (Picture: Getty)

Brian Murphy, Head of Lending at Mortgage Advice Bureau, explains: ‘The new mortgage guarantee scheme will see the UK Government act as a safety net for lenders. In the worst-case scenario, if or where the property is repossessed and sold at a loss, the Government will take on some of the losses incurred by the lender. In return, lenders will have greater incentive to offer 95% mortgage products to people looking to buy a new home, as they’ll carry less risk.’

Getting a 95% mortgage will all depend on your individual circumstances and affordability – which can be assessed by a mortgage adviser.

For many, the 95% mortgages will help them get a step on the property ladder (Picture: Getty)

However, Rosie Fish, Mortgage expert at Habito, warns that getting access to the 95% mortgage deals may be tough for some: ‘Access to these deals will remain tough due to lenders imposing harder criteria for borrowers to meet – applicant’s credit scores will have to be ‘excellent,’ rather than just ‘good’. There are also restrictions over new build and flats, and the interest rates charged will be higher than the rates we saw pre-Covid.’

Which banks are offering the new 95% mortgage scheme?

Jo Thornhill, finance expert at MoneySuperMarket, told Metro.co.uk: ‘The initial response from industry looks encouraging with many big-name lenders indicating that they’ll be releasing new products this week.’

Banks including Lloyds, Santander, Barclays, HSBC, and NatWest are all due to offer 95% mortgage, starting this month.

There are restrictions on some offers from banks, such as Halifax and Barclays who have said that the new 95% mortgage scheme will not be available on new build properties.

Find out more information on their respective websites.

How to work out your monthly mortgage repayments

‘If you’re a buyer, as ever, it’s important you consider your options carefully. 5% mortgages often come with higher interest rates to offset the risk the bank is taking on, so if you don’t have a higher deposit, make sure you shop around for a deal that’s meets your affordability,’ advises Jo.

Holly Andrews, Managing Director at KIS Finance told us: ‘The downside of 95% mortgages is that the bigger the percentage of the property’s value that you’re borrowing, the higher the interest rate you’ll be charged (usually).

‘Interest rates are currently very low, but the LTV, as well as your credit score, will play a large part in the lender’s decision-making process. If you’re being charged a high interest rate then you need to consider how high your mortgage payment will be and whether it will be affordable.’

You can work out your monthly mortgage repayments easily online using a free mortgage calculator, such as this one by the Money Advice Service.


MORE : New builds for first-time buyers on sale with Help To Buy – in London and beyond


MORE : Lifetime ISAs: Are they a good idea for first-time buyers? What are the Help to Buy alternatives?

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