With increasing house prices, it is becoming more difficult for people to get on the property ladder. The main aim of the 95% mortgage is to make home ownership easier for more people with help provided for prospective buyers who only have a small deposit.

We will have a look at the different government schemes below in more detail

The Government announced a new government-backed mortgage guarantee scheme at the Budget in March 2021, has been set up to help people secure mortgage deals with just a 5% deposit. The 95% Mortgages Guarantee Scheme launched on Monday 19 April 20201 and will run until December 2022. It is similar to the 5% deposit - Help to Buy Government-backed scheme, which operated between 2013 and 2017. Participating banks and building societies have to offer a five-year fixed rate as part of their range of 95% mortgage products. Several major lenders have taken part in the Government's mortgage guarantee scheme, where buyers have access to 95% loan to value mortgage deals. With the demand in the housing market increasing, many buyers looked to take advantage of the stamp duty holiday, which in turn also saw property prices increasing.

How does the 95% mortgage work?

Under the scheme, first-time buyers, home movers and previous homeowners with a 5% deposit have access to 95% Loan-To-Value (LTV) products (meaning the loan is for 95% of the property's value).

In brief:

The 95% mortgage works as a standard mortgage. For the mortgage lender the Government guarantees some of the cost, if the lender loses money. For example if the borrower fails to keep up with mortgage payments and the property is repossessed, the subsequent sale may not recoup the outstanding mortgage amount due to demand, or negative equity or if house prices fall. Under the Government guarantee, the Government would cover 95% of any losses a lender may have made on the amount of the mortgage above 80% loan to value.

For Example, on a £100k property with a 95% mortgage, the lender would not have a Government guarantee on the first £80k, but the Government would then guarantee 95% of the remaining £15k).

Any buyer with a small deposit can get one of these Government-backed mortgages. They are not restricted to first-time buyers, and therefore can be used by anybody buying a main home, including previous homeowners and home-movers.

The deals are available directly with the lender or through a mortgage broker.

It is advisable to speak to a mortgage broker, who can ensure you meet the criteria for the scheme, and also meet the status and lending criteria for the lenders, which will vary from lender to lender.

Your mortgage broker, can guide you, discuss options and also compare the mortgage deals for 95% mortgages against mortgage deals available if you are able to put in a bigger deposit, where the interest rates available may be lower.

You'll need to pass a lender's normal mortgage affordability criteria and your credit history will need to be intact.

Help to Buy is a government-backed scheme which aims to help first time buyers get on to the property ladder, who do to have enough deposit to do so without the scheme. The government loan will help increase the deposit amount.

The new Help to Buy Equity Loan scheme was launched on 1 April 2021. It is for first-time buyers and includes regional property price limits to ensure the scheme reaches people who need it most.

Government Equity Loan:

As with the previous scheme, the government will lend eligible homebuyers up to 20% of the cost of a newly built home outside of London, and up to 40% in London. The buyers needs a minimum of 5% deposit and the rest is funded by a mortgage.

Please note - although the minimum deposit required is 5%, you may be required to put in a bigger deposit depending on the outcome of your affordability with both the mortgage lender and Help to Buy.

The previous Help to Buy scheme ran until March 2021 and replaced by the new one which runs until March 2023.

If you’re married or in a co-habiting relationship, you’ll have to make a joint application with your spouse or civil partner and both live in the home having it as your only residence.

There are price limits on homes you can buy under the scheme. The limit is different for each region in England and you have to buy from a Help to Buy Registered homebuilder.

Below are the steps we recommend you go through when applying for a Help to Buy:

1. Before you start your search, speak with a mortgage adviser - they will be able to go through the eligibility criteria with you, and discuss and confirm affordability for both the mortgage and the government loan. They would discuss the best deal for you and give you an indication of the monthly repayments on your mortgage based on the mortgage term. You will also need to appoint a solicitor to carry out the legal work.

2. Speaking with your broker will also provide information of the different mortgage types and interest rates available - fixed rate mortgage, variable rate and tracker rate mortgages, and your broker will be able to discuss the pros and cons of each.

3. The lending will be based on the purchase price, loan to value, your affordability and the lender will also include a payment for the Help to Buy loan which you will need to pay the interest on from year 6.

4. For the first five years, the Help to Buy Loan is interest free and there are no monthly payments. You will need to make the monthly mortgage payments. From year 6, you will be required to make the interest payment on the equity loan also.

1. At London FS, our brokers will request your documents from you to ensure you will meet the lender criteria and address/ discuss any issues that may arise.

2. You are then ready to find your home and reserve it with a homebuilder registered with the scheme. Once that is agreed, go back to your adviser who will finalise your mortgage deal, and arrange for the it to be to be agreed in principle.

3. Your broker will be able to help you to apply for the Help to Buy Loan through the Help to Buy agent in your region.

4. The Help to Buy agent will assess your eligibility for the scheme and issue an Authority to Proceed. The Authority to Proceed allows you and your broker to submit your application, and progress your application to obtaining a mortgage offer.

5. Your solicitor will take your application from offer to exchange of contracts, where the Help to Buy agent will issue an Authority to Exchange

6. Once all the paperwork and dates are agreed and the home is built (practical completion), the Help to Buy agent will issue a Transaction Confirmation. This allows legal completion and funds to be transferred to the homebuilder.

7. After legal completion, the Help to Buy agent passes your details to the equity loan administrator to manage the equity loan account until it is paid in full.

This is essentially for people who would like to own their own home but cannot afford to buy on the open market. Shared Ownership costs are usually lower than other housing options for a number of reasons:

Shared Ownership properties can often be found in private developments as a certain number of homes will often be required as a part of the planning permission for a development.

How does it work?

You pay a mortgage on the share you own, and will also pay rent to a housing association on the remaining share. Because you only needs a mortgage for the share you are purchasing, the amount of money required for a deposit is usually a lot lower when compared to the amount that would be required when purchasing outright.

Typically lenders will require a 10% deposit, but there are a few lenders who will accept a 5% deposit, and you would get a 90 - 95% mortgage for the balance of the share you are buying.

You have the option to increase your share in the future via a process known as ‘staircasing’, and in most cases can staircase all the way to 100%.

Eligibility:

Lending criteria for any of the schemes will vary, with some lenders not accepting mortgage applications at all.

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY OTHER DEBT SECURED ON IT.