ON THE LADDER
Generation Buy: What is Boris Johnson’s new 5% deposit mortgage scheme?
MILLIONS of Brits are to be given a helping hand onto the property ladder thanks to a new 5% deposit mortgage scheme.
Here's what we know so far, and what Boris Johnson said about the scheme today.
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The new home help was announced by the Prime Minister at the virtual Conservative party conference as part of his promise to "turn Generation Rent into Generation Buy".
Mr Johnson added that the scheme would "give the chance of home ownership and all the joy and the pride that goes with it to millions who currently feel excluded".
The PM said: "We will fix the long term problems of this generation not by expanding the state but by giving power back to people.
"The life affirming power of home ownership. The power to decide the colour to paint your own front door."
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How will the 5% deposit mortgage scheme work?
The government has yet to reveal specific details about how exactly the scheme will work, or when it will launch.
There's also been no detail on how many mortgage deals could potentially become available, or who would cover any liability if a borrower misses a mortgage payment.
We've asked the Ministry of Housing, Communities and Local Government for more information and we'll update this article when we get a response.
Previous help from the government includes the Help To Buy equity loan scheme, which also saw first-time buyers benefit from 5% deposits.
Through the initiative, home buyers could borrow up to 20% of the value of a property from the government, or up to 40% in London.
The loan would be interest free for five years, and there was several ways property owners could pay it off.
Borrowers could either add the loan to their mortgage when it comes to remortgaging, pay it off when selling the house, or pay it off in cash instalments worth at least 10% of the property's value.
If the borrower missed a payment on the loan, the government would pick up some of the loss.
Again, there's been no suggestion yet as to whether the new scheme would work in the same way as Help To Buy.
By the time Help To Buy was pulled in 2016, the number of 95% mortgages available on the market had more than doubled.
Karen Noye, mortgage expert at Quilter, said: "This policy needs to be fleshed out in more detail but on the face of it ought to be a big boost for first time buyers.
"At the moment, lenders are tightening lending to those deemed higher risk. That means for that first time buyers, there aren’t many options unless you have a sizeable deposit."
What help is out there for first-time buyers?
GETTING on the property ladder can feel like a daunting task but there are schemes out there to help first-time buyers have their own home.
Help to Buy Isa - It's a tax-free savings account where for every £200 you save, the Government will add an extra £50. But there's a maximum limit of £3,000 which is paid to your solicitor when you move. These accounts have now closed to new applicants but those who already hold one have until November 2029 to use it.
Help to Buy equity loan - The Government will lend you up to 20% of the home's value - or 40% in London - after you've put down a 5% deposit. The loan is on top of a normal mortgage but it can only be used to buy a new build property.
Lifetime Isa - This is another Government scheme that gives anyone aged 18 to 39 the chance to save tax-free and get a bonus of up to £32,000 towards their first home. You can save up to £4,000 a year and the Government will add 25% on top.
Shared ownership - Co-owning with a housing association means you can buy a part of the property and pay rent on the remaining amount. You can buy anything from 25% to 75% of the property but you're restricted to specific ones.
"First dibs" in London - London Mayor Sadiq Khan is working on a scheme that will restrict sales of all new-build homes in the capital up to £350,000 to UK buyers for three months before any overseas marketing can take place.
Starter Home Initiative - A Government scheme that will see 200,000 new-build homes in England sold to first-time buyers with a 20% discount by 2020. To receive updates on the progress of these homes you can register your interest on the website.
What is a 5% deposit mortgage?
If you qualify for a 5% deposit mortgage, you'll essentially be borrowing 95% of the total value of a property.
For example, if you wanted to buy a home worth £125,000 then you'd need to put down 5% of this price, so £6,250.
The remaining figure, so £118,750, would be borrowed as part of your mortgage.
Currently, the amount buyers can borrow is limited to typically around 4.5times their annual salary - so for the above example, you'd need to be earning around £26,388 per year.
But strict borrowing rules mean some buyers find themselves being locked out of securing their dream home, even if they can afford the repayments.
The Telegraph reports that Mr Johnson has asked ministers to come up with a way to remove stress tests for mortgage applicants, which means the new scheme could open up more opportunities for potential buyers.
But experts say the scheme must be devised in a way that ensures buyers can still actually afford the home they want to buy.
Eleanor Williams, finance expert at Moneyfacts, said: "The withdrawal of many low deposit mortgages, coupled with plummeting savings rates and the rise in house prices, may have seen many would-be first-time buyers despairing.
"Therefore, news of the planned 5% deposit mortgage scheme may come as music to the ears of prospective purchasers.
"However, it would need to be rolled out in a way that ensures the risks of taking on a low-deposit mortgage are considered carefully, and also makes certain that the supply of affordable housing is there to meet the demand."
Mortgage offers with a 5% deposit are currently thin on the ground, with hundreds of lenders pulling these types of deals following the coronavirus crisis.
Now, deposits tend to be roughly 15% to 20% of the price of a property and it's even caused lenders to hold flash sales for mortgages.
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