The Chancellor has confirmed the launch of a mortgage guarantee scheme for small deposit homebuyers.
Announcing the scheme in the Budget today (March 3), Rishi Sunak saidsome of the largest lenders would be offering government backed 95 per cent mortgages from next month.
He said: “Lenders who provide mortgages to homebuyers who can only afford a 5 per cent deposit will benefit from a government guarantee on those mortgages.
“And I’m pleased to say that several of the country’s largest lenders including Lloyds, NatWest, Santander, Barclays and HSBC will be offering these 95 per cent mortgages from next month.
“And I know more including Virgin Money will follow shortly after.
“A policy that gives people who can’t afford a big deposit the chance to buy their own home.
“As the prime minister has said, we want to turn generation rent into generation buy.”
Tony Hall, interim head of mortgage sales at Saffron Building Society, commented: “First time buyers historically have been a large part of the mortgage market with up to 350,000 purchases every year.
"However, one of the lateral impacts of the property market over the last 12 months due to the pandemic has been a rapid rise in house prices combined with falling availability of high loan to value mortgages, due to uncertainty on where prices will trend in 2021.
“The new Guaranteed Mortgage Scheme would help the situation for the buyer whilst supporting the industry. It offers intermediaries the opportunity to reengage with clients that may have missed out on their mortgage in 2020 and bring them closer to their first or next home.
“We also hope that by stimulating the market we will begin to see lenders returning to the 95 per cent LTV market in response, creating competition and choice for intermediaries and applicants in a much-needed sector of the market."
It comes after plans for the mortgage guarantee scheme were revealed by the Treasury over the weekend.
The scheme will enable first-time buyers and homeowners to secure a mortgage with a 5 per cent deposit on a property of up to £600,000.
The government will offer lenders the guarantee they need to provide mortgages that cover the other 95 per cent.
The scheme, which will be available to lenders from April, will provide them with the option to purchase a government guarantee that compensates them for a portion of losses in the event of foreclosure.
All lenders under the scheme will also offer mortgages fixed for at least five years which, according to the Treasury, would provide options for consumers with smaller deposits who want the security and predictability of a mortgage with a fixed rate over a longer term.
It comes after a party conference speech last year in which Prime Minister Boris Johnson said the Conservatives would help turn ‘generation rent’ into ‘generation buy’ with a policy on long-term fixed-rate mortgages of up to 95 per cent LTV.