What is Boris Johnson’s new 5% deposit mortgage scheme and how does it work? 7 October 2020, 11:40. Boris Johnson has announced his new mortgage scheme. 2 days ago  Ultra-low deposit mortgages are set to make a comeback with a new 5% deposit home loan guarantee scheme. The Chancellor Rishi Sunak today announced the scheme will come into force. If you've saved up a 5% deposit you'll probably want to know how much you could borrow with a 95% mortgage, and whether this would be enough to afford a property. Your salary is one of the main things a mortgage lender considers when deciding how much you can borrow. Our 95% mortgage.

It's technically possible to get a mortgage with a deposit of 5% of a property's value. In the current market, however, you might find you need as much as 10% or even 15%, as many lenders have withdrawn their low-deposit deals due to economic issues caused by COVID-19. However, some buyers on lower incomes, particularly those not buying as part of a couple, may struggle to access the new 5 per cent deposit mortgages because most banks will only lend someone 4.5.

7 October 2020, 11:40

How does the new deposit mortgage scheme work and who is eligible? Find out about Boris Johnson's announcement.

Boris Jonhson announced on Tuesday (October 6) that he was going to turn 'generation rent into generation buy' with plans to help homebuyers.

In a speech to the virtual Conservative Party conference, the Prime Minister said up to two million people are missing out on owning their own home because they can’t save a large enough deposit.

He said: “We need now to take forward one of the key proposals of our manifesto of 2019: giving young, first-time buyers the chance to take out a long-term, fixed-rate mortgage of up to 95 per cent of the value of the home - vastly reducing the size of the deposit.

“We will help turn generation rent into generation buy.”

But what is Boris Johnson’s new mortgage scheme and how does it work? Here’s what we know…

What is Boris Johnson’s new 5% deposit mortgage scheme?

The government hasn’t yet revealed the details about how the new scheme will work or when it is set to launch.

There's also been no word on who would be eligible to apply and how it will be calculated.

Many experts are suggesting it could be similar to the previous Help To Buy scheme which saw first-time buyers benefit from 5% deposits.

With this, home buyers could borrow up to 20% of the value of the property they wanted to buy from the government, or 40% in London.

The loan would then be interest free for five years, with property owners offered different ways to pay it off.

These include adding the loan to their mortgage, paying it off when selling the house, or paying it off in cash instalments.

Meanwhile, the Telegraph recently reported that the PM has asked Ministers to draw up plans which could see banks remove 'stress tests' which were introduced after the financial crisis of 2008/09.

This means those who want to take out a mortgage will have to adhere to less criteria in order to secure a loan from the bank.

Becu Home Loans Refinance

Currently, those who want a loan can expect assessments of income, expenditure and existing debts, verification of income, an assessment of future income, and 'stress tests' to see if they could keep up with repayment if rates were to rise.

Under new plans, this could potentially be relaxed, while a form of 'state guarantee' to lenders would be increased in order to balance out the risk.

This could be a way to encourage more banks to start lending to small deposit borrowers again.

Chancellor Rishi Sunak has today (3 March) announced a new five per cent deposit mortgage scheme in the Budget.

The scheme will be available to both first-time buyers and current homeowners looking to buy a house for up to £600,000.

How does the scheme work?

The new ‘mortgage guarantee’ will be available to lenders from April and is designed to help buyers who cannot afford a large deposit to get onto the property ladder.

Under the scheme, the government will offer to take on some of the risk of low deposit loans, meaning lenders will have some protection from potential losses.

Low deposit loans are often regarded as higher risk as borrowers could end up in negative equity if house prices fall, leaving them owing more than their property is worth.

Lenders will now be able to purchase a government guarantee that compensates them for a portion of their losses in the event of foreclosure.

All lenders under the scheme will offer mortgages that are fixed for at least five years as part of their range of products, providing options for those with smaller deposits who want the security and predictability of a mortgage with a fixed rate over a longer term.

Announcing the mortgage deposit scheme, Mr Sunak said: “Lenders who provide mortgages to homebuyers who can only afford a five per cent deposit will benefit from a government guarantee on those mortgages.

“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.”

Prime Minister Boris Johnson has said previously that he wants to turn a generation of renters into a generation of buyers and “these 95 per cent mortgage guarantees help to deliver this promise.

Mr Sunak added: “By giving lenders the option of a government guarantee on 95 per cent mortgages, many more products will become available, helping people to achieve their dream and get on the housing ladder.”

Help to get on the property ladder

The new initiative follows in the footsteps of the UK-wide Help to Buy mortgage guarantee scheme, which was launched in 2013 and helped to reinvigorate the market after the 2008 financial crisis.

This scheme also offered five per cent deposit mortgages, and helped more than 100,000 people across the UK to buy a home, but it is no longer running.

The introduction of this new low mortgage deposit scheme marks a positive step for the property sector, after many low deposit mortgages vanished from the market last year amid concerns about the wider economy.

However, more recently, lenders have been bringing back low deposit deals, clustered around the 10 per cent deposit mark.

Yorkshire Building Society launched two new 10 per cent mortgages on Wednesday (3 March) exclusively for first-time buyers.

House prices have also jumped to record highs in recent months, which has been partially fuelled by the temporary stamp duty holiday. This was due to end on 31 march, but has now been extended to 30 June.

In response to the five per cent deposit mortgage scheme, Islay Robinson, CEO of Enness Global Mortgages, said: “Ninety five per cent mortgage products in any shape or form take the market into pretty overheated, dangerous territory and we’ve previously seen the results of this kind of precarious lending to those who aren’t really in the financial position to commit to it.

“As always, the devil will be in the detail but many lenders have already tightened their belts over the last few months in terms of their high loan to value offerings.

“Although many big lenders have committed to the government’s announcement today, it will be interesting to see just how many buyers are able to secure such a product when it comes to actually applying.

“Converting Generation Rent to Generation Buy is a noble initiative but not if it comes at the expense of wider market health.”

Keith Richards, chief executive of the Personal Finance Society, added: “The extension of the stamp duty holiday and mortgage guarantee scheme to help first-time buyers and current homeowners with just five per cent deposits to buy properties worth up to £600,000 are welcome short-term fixes but to truly turn Generation Rent into Generation Buy then long-term action is needed.

5 Deposit Mortgage Uk

“The damage done to personal finances by Covid-19 means the mortgage guarantee scheme will be welcomed by those whose ability to set cash aside for a deposit to get onto the housing ladder has been hampered by furlough, but what we need to turn the tide on home ownership in the UK is more affordable housing.”