The housing market has remained surprisingly resilient over the past 12 months, with prices in most areas continuing to rise. And whilst this is welcome news for existing homeowners, it does mean that the challenge of getting on the property ladder for most first-time buyers is still a daunting one.
With a fragile global economy, the situation has been further compounded by lenders being reluctant to offer high loan to value mortgages. The fear of negative equity, last experienced in the late eighties and early nineties, still hangs over the mortgage market.
The Stamp Duty holiday has provided a significant boost to many buyers, but it did little to help those that were struggling to raise a sufficient deposit to buy their first home.
The Mortgage Guarantee Scheme
The government has announced a new mortgage guarantee scheme to help first time buyers realise their dream of owning a home.
Due to launch this month, the scheme will assist first-time buyers with small deposit by protection lenders if the borrower defaults. It is hoped that the ‘guarantee’ will encourage more lenders to offer products at 95% loan to value, which in turn will mean more competition leading to more choice for the consumer.
What does this mean for the first time buyer?
For those that only have a 5% deposit, the Government will effectively protect the lender down to 80% of the property value. This significantly reduces the risks to the lender and should lead to a healthy take-up of the scheme from the lending community.
Most major high street lenders have signed up to the scheme, but no products have been launched to date. That said, we are already beginning to see the emergence of new products at 90% and 95% coming to market, which is perhaps a direct result of the Government’s initiative.
To be eligible, properties must be valued at £600,000 or less. At this stage, it is unclear whether the mortgage guarantee scheme can be used in conjunction with other affordable housing products, although it is thought to be unlikely.
When can you take advantage of this scheme?
Details of how to apply have yet to be released, but it is assumed that the scheme will be available through mortgage brokers and directly through lenders.
However, although the scheme will be helpful to some, it has been recognized that it may not assist those looking to buy in London or the south east.
Lending will still be restricted by income multiples and affordability calculators, meaning that even with a 5% deposit, that ideal first home could still be out of reach for some.
Buying your first home may still be a challenge, but with more Government support on the way, it can only be more good news for first-time buyers.
Article credit: Simon Torry at SRC Mortgage Solutions
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