What is a 95% mortgage, and what is the new government mortgage guarantee scheme?

A 95% mortgage enables you to borrow up to 95% of the purchase price of the property you want to buy, with the remaining 5% made up of your deposit.

An arrangement such as this will sometimes be referred to as a 95% LTV mortgage, where LTV stands for ‘loan-to-value’ ratio. In other words, the mortgage is for 95% of the property’s market price.

A 5% deposit could help you get on the property ladder sooner, as you’ll need to save less of a lump sum.

The lowest mortgage interest rates are reserved for borrowers with large deposits of around 40% or more, but there are competitive deals for buyers with just 5% to put down.

Just be aware that a smaller deposit does mean that your choice of mortgages will be more limited.

What is the mortgage guarantee scheme?

A new government-backed mortgage scheme will help first time buyers or current homeowners secure a mortgage with just a 5% deposit.

The scheme was announced in the March 2021 Budget and is designed to encourage lenders to start offering 95% mortgages again, after nearly every single one was withdrawn during the pandemic. Under the terms of the scheme, the government guarantees the portion of the mortgage over 80% (so, with a 95% mortgage, the remaining 15%). This might sound complicated, but in practice it just means the government will partially compensate the lender if a homeowner defaults on (fails to pay) their mortgage. 

Why has the government launched this scheme? 

The Covid-19 pandemic started in March 2020 and the number of low-deposit mortgages fell.  The scheme aims to give lenders the confidence to offer 95% mortgages again by taking on some of the risks involved with doing so. 

How do I find out more?

You can contact us and we will discuss your options with you,  and find the right mortgage for your individual needs. 

https://www.meridianmortgages.net/contact-us