Our trusted partner, Rob Starr, CEO at Seico Mortgages shares his comments on the Mortgage Guarantee Scheme following the Chancellors recent update:
“The Chancellor has once again shown that the buoyancy of the property market is key to help the country avoid a major slump. It is also clear that the government believe owning a property remains one of the things most people want to achieve in their life.
“Whilst being able to afford a mortgage is key to buying a property, a major stumbling block for many people who can prove affordability is still finding a lender who will take a risk on you only putting down a small deposit, such as 5%.
“Low deposit loans are often seen as a major risk to a lender because borrowers could end up in negative equity if house prices fall – meaning they owe more than their property is worth.
“The Chancellor has now launched his scheme to give lenders more confidence and protection on small deposits. From April 2021 Lenders will 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 fixed for at least five years as part of their range of products, providing options for buyers with smaller deposits who want the security and predictability of a mortgage with a fixed rate over a longer term.
“Surprisingly, Mr Sunak has not restricted this just to first-time buyers. This scheme is open to anyone, although there is a £600,000 limit on purchase prices.
“The pandemic meant there were very few mortgages on offer at 95% loan to value, in fact in January 2021 it was said that there were only about eight deals available out of hundreds that would do this. However, under this new scheme we have seen a huge increase in lenders now offering over 90% loans and we are expecting to see the number of 95% loans increase substantially.
“Given that buying a property as a primary residence is still the only way in which you can make money tax free, as there is no Capital Gains Tax, this development will undoubtedly enable many thousands of people currently renting, to benefit from this uniquely good investment opportunity in the near future.
“This is a welcome and unprecedented Government scheme that brings fantastic news to anyone who can prove affordability but still struggles to raise a significant deposit.”