Budget: How will the mortgage guarantee scheme work?
- Credit: PA
Chancellor Rishi Sunak gave home buyers an incentive to get moving with an extension to the stamp duty holiday and also a government-backed low deposit mortgage scheme.
Here's what we know so far:
The 95pc mortgages are expected to be available to all, not just first-time buyers, on purchases of properties costing up to £600,000 and not restricted to new build. According to Rightmove, this accounts for 86pc of all homes currently up for sale in the UK.
When are they available?
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The chancellor stated the new mortgages would be available from next month. He said Lloyds, Natwest, Santander, Barclays and HSBC would be offering the 95pc mortgages from April and Virgin Money will follow shortly after.
How much do you need to earn?
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It is currently unknown if banks will be able to adjust their affordability checks to make the scheme available to more buyers. Usually lenders will allow you to borrow up to 4.5 times your annual salary. With the average salary in the UK at around £29,000, it still makes buying a house difficult for a single person.
The new 5pc mortgage scheme is said to suit people on a salary meaning they could make mortgage payments relatively easily, but who can't to save for a large deposit.
How much do you save on a deposit?
Mortgage lenders had scrapped most 95pc products because of the uncertainty of coronavirus. On average, home buyers were looking at putting down a 10-15pc deposit. So, if you were buying a house for £200,000 you would be expected to find £20,000-£30,000 deposit. The new 5pc deposit would be £10,000.
How much will the new mortgage scheme interest rates be?
The government is backing the new low deposit mortgages to remove the risk attached for lenders in the pandemic. However, it is thought there will be some extra costs to lenders which will mean the costs may be passed on to borrowers by higher interest rates.
What will happen to house prices as a result?
Some believe the chancellor's budget boost will mean prices will rise as more people get moving. The concern is if prices fall because of coronavirus, borrowers could end up in negative equity, owing more money than their house is worth. It is one of the reasons lenders are wary of offering mortgages to people with small deposits.