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.
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."
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.
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.
The news comes shortly after the government launched its Green Homes Grant scheme with vouchers worth up to £10,000 to help property owners be more eco-friendly.
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