Earlier this month Chancellor Rishi Sunak made the Government’s Budget announcement for 2021. Within the furlough extension, investment in the vaccination roll out and the post-pandemic long-term economic recovery…he also revealed a new Mortgage Guarantee, which could be a welcome move for First Time Buyers.
Since the Coronavirus pandemic hit, it has understandably had a massive economic impact across the UK. The temporary LBTT relief was introduced to get the property market moving again after lockdown but unfortunately that is due to finish at the end of March. From April the new Mortgage Guarantee will be in place across the UK and will mean property buyers can benefit from a mortgage with a deposit as low as 5%.
This isn’t a completely new concept, with low deposit mortgages having been available before now. However since the pandemic hit, these have been seldom available, as it has been considered too risky for lenders to offer.
What is the new Mortgage Guarantee?
The Government is stepping in to offer some extra security for lenders. This means lenders will be able to buy a Guarantee on a portion of a mortgage (between 80-95%). And if the borrower was to become unable to pay back the mortgage and the house was repossessed, the Government will cover that chunk of the lender’s loss. This added security means lenders can now offer mortgages with 5% deposit, without solely taking on the risk themselves.
The new 5% Deposit Mortgage Guarantee is available to lenders from April 2021.
What’s the maximum Mortgage amount covered?
The property purchase amount has been capped at £600,000 for the 5% Mortgage Guarantee.
Is it only First Time Buyers who can benefit?
No! This new Mortgage Guarantee is available to anyone who could benefit from having a lower deposit mortgage. However it is not intended for those looking to purchase a second home or Buy-to-Let properties.
It is believed that it will be First Time Buyers who are the main users for this Mortgage Guarantee, with Boris Johnson expressing that he hopes this will turn “generation rent” into “generation buy”.
It is also worth noting that it will work in the same way as any other mortgage offer, with all the lender’s usual affordability checks and requirements being in place before receiving a final mortgage offer.
So are things looking up for First Time Buyers?
It would certainly seem so, with lower deposit mortgages making buying property a lot more accessible for many people.
Of course the Mortgage Guarantee being helpful is completely subjective to each individual buyer but some examples of who are likely to benefit are:
- First time buyers who are struggling to get a larger deposit together due to lockdown affecting their money available to save (eg. being on furlough).
- First time buyers who have had to dip into their existing savings due to the pandemic affecting their usual income (eg. being on furlough).
- First time buyers who are finding it difficult to save a larger deposit due to already paying rent on property.
- Families needing to upsize their home due to a lockdown baby but not having a larger deposit readily available to allow this.
- Couples who are separating and are dividing assets, leaving them with less savings available for a mortgage, than they would have had combined.
With lenders able to offer the 5% deposit mortgages with the new Mortgage Guarantee from April 2021, it could well be the perfect time for first time buyers to get their foot on the property ladder.
If you are a First Time Buyer and in need of a solicitor to represent you in the purchase of your first property, get in touch today on 0131 554 6244 or email: mail@bprsolicitors.co.uk.