Budget Breakdown: Can you get a mortgage with a 5% deposit?
Last month, the government announced a new Budget and as part of it, they announced a plan to encourage the return of the 5% deposit mortgage. And, good news for all you prospective buyers with less than the largest nest eggs, the plan is set to start this month!
If you’ve been trying to buy a property within the past year, especially if you’re a first-time buyer, you’ll probably know that the number of 5% deposit mortgages options has reduced dramatically. This latest move from the government is their attempt to reverse this change and encourage lenders to start offering these mortgages again. So, if you’ve been sitting on your 5% deposit waiting for your chance, this is your moment!
In his speech, the chancellor, Rishi Sunak, explained why this is so important, highlighting that ‘the cost of a deposit’ is ‘a significant barrier to people getting on the housing ladder’. Which, if you’re trying to buy a home currently, you’re probably very, very aware of. Under the scheme starting this month, the government is covering some of the lenders’ risk on 95% mortgages for potential buyers (both first-timers and old-timers) looking to purchase a property of up to £600,000 in the UK. The ‘risk’ involved is the chance that someone who takes out a mortgage may not be able to pay the loan back.
Getting 5% deposit mortgages back on the market is a step towards helping open up the property market to more people; however, there are still challenges that won’t be solved by this move. For example, many lenders are still using relatively low income to loan multiples, which means they will only let you borrow up to 4.5 times your income in some cases. In some situations, that is not a large enough amount to purchase an average property with a 5% deposit.
So, if you are looking to take advantage of the return of 5% deposit, speak to your adviser to find out your options
If you’d like to discuss the options available to you, contact your adviser today.