95% mortgages will now remain widely available through a government-backed scheme until December 2023.
To help more people with a 5% deposit buy a home, the Mortgage Guarantee Scheme has been extended by one year.
It was originally scheduled to end in 2022, but will now run until 31 December 2023.
In total, it has helped more than 24,000 households purchase homes, including 85% of first-time buyers.
Chief Secretary to the Treasury, John Glen, said: “Extending this scheme means thousands more have the chance to benefit, and it supports the market as we navigate through these difficult times.”
In light of falling house prices in some areas, commentators had expressed concerns before the announcement that the end of the scheme would make it difficult for those with only a small deposit to obtain mortgages. Many lenders have withdrawn mortgages for people who borrow 95% of their home’s value. The news that the scheme will be extended should boost the supply of these loans.
What is the procedure?
By guaranteeing the portion of the loan over 80%, the scheme encourages lenders to offer 95% mortgages. The government will cover up to 15% of the shortfall if the borrower defaults on the mortgage.
Both first-time buyers and buyers trading up the property ladder can benefit from the scheme.
You can use it to buy an existing or a new home, but it must be financed with a repayment mortgage rather than an interest-only loan.
After lenders pulled out of the market 95% mortgages for people with small deposits due to Covid-19, the Mortgage Guarantee Scheme was launched in April 2021.
Are there any other resources available to first-time buyers?
People can get on the housing ladder with the help of a number of government programs. First Homes enables first-time buyers, key workers, and local residents to purchase a home at a 30% discount, while Shared Ownership allows people to buy a share and pay rent for the rest.
A Lifetime ISA, under which you can save £4,000 a year for a deposit, is also available to first-time buyers. For free, the government adds a 25% bonus, up to a maximum of £1,000 per year. Either a first home purchase or retirement must be the purpose of the funds.
For first-time buyers, the government has also increased the threshold at which stamp duty kicks in from £300,000 to £425,000 on homes up to £625,000 until April 2025.
Mortgage lenders to offer loans on high-rise apartment buildings
Those who own flats in high-rise buildings with cladding also got good news.
Beginning in early next year, six lenders will accept mortgage applications from people living in buildings over five storeys tall, or 11 metres tall, with cladding.
Cladding-impacted properties can now be valued according to new guidance issued by the Royal Institution of Chartered Surveyors.
Lenders will, however, want to see evidence that dangerous cladding will be removed, either by the developer or by a government program. There are a number of lenders who will consider mortgage applications from people in high-rise buildings with cladding, including Barclays Bank, HSBC, Lloyds Banking Group, Nationwide Building Society, NatWest and Santander.