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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.

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).