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28th April 2021

Cutting Through the Jargon – 95% mortgage scheme

The Government-backed 95% mortgage scheme will help first-time buyers or current homeowners secure a mortgage with just a 5% deposit. This is part of an initiative to encourage ‘Generation Rent’ to become ‘Generation Buy’ and make homeownership a reality without the burden of raising a large deposit.

The scheme will be available to lenders such as Lloyds, Natwest and HSBC on properties up to the value of £600,000. The news will be welcomed by many buyers, including first-time buyers looking to find their dream home.

How does the scheme work?

A 95% mortgage works precisely the same as a typical residential mortgage, but with a 5% deposit (which hasn’t been available in the last 12 months in the wake of the pandemic).

Lenders can offer 95% mortgages on two to five year fixed terms. Although there are significantly more lenders offering five-year fixed-term mortgages, two-year terms are often better suited to first-time buyers who may not want to commit to a longer period.

We would encourage anyone interested in the scheme to speak to a financial adviser, such as Connect Financial Solutions, in the first instance, as they will be able to offer advice on which terms would be best suited to you.

What does this mean for buyers?

We are hopeful that the scheme will allow a new set of buyers to take a step onto the property ladder that otherwise wouldn’t have the opportunity to secure a mortgage.

There is not a ‘one size fits all’ when it comes to mortgages; it is important to remember that each purchase is entirely individual to the client, and different lenders and rates will be better suited. A financial adviser will provide the best guidance on which terms would be best suited to each client.

Will the scheme be available on new build properties?

The 95% mortgage scheme will not be available on new build properties. This was the case pre-Covid as there were very few lenders offering 95% mortgages on new builds. Instead, first-time buyers can use the Help to Buy Equity Loan Scheme, which only requires a 5% deposit (subject to local limits).