New 5% Deposit Scheme Could Help Millions of First Time Buyers
As part of the 2021 Budget outlined by Chancellor Rishi Sunak this week, major banks and lenders are to be offered incentives to help more first-time buyers get on to the property ladder.
Ahead of the official announcement, the Treasury affirmed the government’s intent to support lenders offering 95% mortgages (with just a 5% deposit requirement), which for the most part disappeared entirely from the market over the past 12 months.
The Chancellor spoke of the major economic challenges posed by the pandemic, spurring an increase in national debt to £2.13 trillion.
“We went big, we went early, but there is more to come and there will be more to come in the Budget. But there is a challenge [in the public finances] and I want to level with people about the challenge,” he explained in an interview with the Financial Times.
“I will do whatever it takes to protect the British people through this crisis and I remain committed to that.”
At the same time, others raised the issue of seemingly inevitable tax rises, insisting that the Chancellor clarifies his position on when and to what extent the country can expect them to occur.
“If we don’t get it under control before inflation comes back then we will face a financial crisis,” warned former Conservative chancellor Lord Clarke, who insisted that an increase in taxation was an urgent priority.
A Helping Hand for First-Time Buyers
The incentives for banks willing to offer 95% mortgages could potentially help millions get on to the property ladder for the first time. It has become apparent that the employment prospects and financial situations of young adults across the country have been devastated by the pandemic.
While the government will be actively encouraging first-time buyers to set their sights on property purchases in the near future, major lenders have affirmed their commitment to lending exclusively to those who are clearly in a comfortable financial position with a guaranteed long-term source of income.
This is therefore likely to mean that even where the 5% minimum deposit requirement applies, it may still be difficult to qualify for a mortgage under the current conditions.
However, the scheme is by no means exclusive to first-time buyers, or for the purchase of new homes. It has been capped at a maximum of £600,000 but it will be accessible to existing homeowners as well as newcomers to the housing market.
Commenting on the introduction of the new incentive scheme, the Treasury highlighted the scarceness of low-deposit mortgages available at the beginning of 2021, just eight in total were being offered in England during January.
The scheme is officially set to be rolled out across the UK in April, at which point the government will begin shouldering some of the risk of these high LTV loans. Its introduction could take place immediately after the withdrawal of the stamp duty holiday, which is expected to be terminated on March 31.