What the New Low-Deposit Mortgage Scheme Means for Homebuyers

Sean Jones
Sean Jones
Senior Associate Operations Manager - Private Client

Last week, Chancellor Rishi Sunak announced that mortgage lenders who provide 95% mortgages to homebuyers who can only afford a 5% deposit “will benefit from a Government guarantee.”

The Chancellor stated that several of the UK’s biggest lenders, including Lloyds and HSBC, will start providing these low-deposit mortgages within the next month to those who need it.

Sunak went on to say, “This policy gives people who can’t afford a big deposit the chance to buy their own home.”

Almost all lenders have only been offering mortgages with a minimum deposit of 10% since the housing market opened back up after the first national lockdown. So for many this announcement means that the housing market will now be more accessible for them to start looking for their new home.

On top of the low deposit guarantee, the Government have announced an extension to the Stamp Duty Land Tax holiday until 30th June, followed by a £250,000 cap on SDLT up until 30th September 2021.

Our Conveyancers and Conveyancing Solicitors have been helping many homebuyers with their property transactions throughout the pandemic. Although we caution buyers that they should still expect delays in the moving process, we are happy that more people will be able to start the process of moving into a new home.

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How Will the Low-Deposit Mortgage Scheme Work?

The new scheme will work by the Government offering to take on some of the risks associated with low-deposit mortgages.

Low deposit mortgages are riskier because if you pay a lower deposit you could end up with negative equity on your house if house prices fall. Negative equity is where your property is worth less than the mortgage secured on it, meaning you could have more debt than your home is worth.

The Government’s guarantee to lenders under the new scheme means that if your home falls into negative equity, they will cover at least some of the lender’s losses.

The new scheme is open to all buyers, including first time buyers, but will be limited to properties costing £600,000 or less.

It’s important to know that paying a lower deposit on your mortgage can mean that your monthly repayments will be more expensive than if you paid a larger initial deposit. But if this is your only option, it’s a great way to get on the property ladder.

What to Expect when Moving Home Now

The housing market has seen a small boom because of the reduced rates of Stamp Duty Land Tax and the backlog caused by coronavirus, which means you should expect delays if you are moving home now.

And while low-deposit mortgages are brilliant news for buyers who can’t afford a bigger upfront mortgage deposit, it does mean that property demand is going to be even higher in the near future.

Our Conveyancers are working hard to complete on property purchases as soon as we can for our clients. But delays to property searches and mortgage lender’s responding slower than before means it’s taking buyers longer to move than it previously would have.

We will always be open and honest with you about what you can expect from your move as well as being completely transparent with our fees from the very beginning of the conveyancing process.

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