5% deposit mortgage scheme launched

Lenders are now starting to offer mortgages to borrowers offering a deposit of just 5% under a new government guarantee scheme.

The policy, announced in the Budget, is designed to help more first-time buyers secure a home.

But the launch comes as average house prices in the UK continue to rise to record levels.

Analysts also suggest that cheaper deals are available for those able to stretch to a 10% deposit.

The new scheme will be available to anyone buying a home costing up to £600,000, unless they are buy-to-let or second homes.

The government is offering a partial guarantee, generally of 15%, to compensate lenders if the borrower defaults on repayments.

The guarantee is designed to give lenders the confidence to offer 95% loan-to-value mortgages – many of which were withdrawn during the Covid crisis.

Lloyds, Santander, Barclays, HSBC and NatWest are starting to offer products this week and Virgin Money will do so next month.

However, some lenders such as Halifax, which is part of Lloyds Banking Group, and Barclays have said that these products will not be available for new-build properties.

Lenders will still carry out affordability checks. Anyone who has lost a job, or whose income has been sporadic owing to the pandemic’s effect on employment may find it difficult to secure a mortgage.

House prices have been rising – partly because of government stimulus, and there are concerns too about the potential for some to fall into negative equity if this is followed by sharp falls in property values.