So, How Affordable Are UK Government 95% Backed Mortgages?

"Subprime Crisis No Barrier to Affordable Housing" by woodleywonderworks is licensed under CC BY 2.0

In a bid to help the UK’s current buoyant housing market, the government has released a new scheme on the 19th of April 2021 called the 95% backed mortgage scheme. Several lenders, to include Halifax, Lloyds, Bank of Scotland, Santander, Natwest, HSBC and Barclays are now offering these mortgages to assist the amount of deals that are possible for homebuyers with limited equity or a low deposit.

This all sounds great, but on closer inspection, are they actually that affordable or do you end up paying through the nose? Well, the fact is that the deals on offer are actually no different from standard 95% mortgages that you’d find on the high street - although they are very few and far between. The small print is what you need to look at, as the interest rate is on the steep side.

The Rules & Limitations

In order for a homebuyer to qualify for the scheme, the property in question can be no more than £600k in value and it can’t be for a second home - only for a person’s main residence. It’s also not applicable on new-build properties - mainly because lenders know they’re less likely to retain their value and they’d lose money if it became repossessed.

You also need to have between a 5-9% deposit, meaning that your loan to value will be between 95-99% and the mortgage needs to be on a repayment basis - not interest-only. The standard affordability criteria needs to be met too, so it would be a stretch to be calling these deals ‘special’, particularly as the average percentage rate is around 4% due to the high LTV.

How It Compares to the Help to Buy Scheme

Launched back in 2013, the Help to Buy scheme allows first-time buyers (unlike the deals above that are for everyone) to buy a home with just a 5% deposit, but in this case, the government provides an interest-free loan for another 20% of the cost of the home, meaning that you’ve only actually got a 75% mortgage. After the five years, the interest-rate on the equity loan is still a pretty low 1.75%.

The benefit of this deal is that it opens buyers up to much lower interest rates because of the low LTV and that can make a big difference in the long run. Paying just 1% more in interest over the course of a 25-30 mortgage can translate into tens of thousands of pounds extra, so it would seem that these new deals are convenient, sure, but good value? Perhaps not.

Several lenders, to include Halifax, Lloyds, Bank of Scotland, Santander, Natwest, HSBC and Barclays are now offering these mortgages to assist the amount of deals that are possible for homebuyers with limited equity or a low deposit.

“Santander bank - geograph.org.uk - 1710962.jpg" by peter clayton is licensed under CC BY-SA 2.0

How Long Will The Buoyant Market Last?

The UK housing market has certainly seen its share of uncertainty over the last 12 months, however, it’s still looking rather healthy. The recent measures taken by the government are certainly helping and with the latest backed mortgage scheme running until December 2022, it would seem that homeseekers still have good reason to be confident that the current positivity will persist. Of course, we will only know for sure in due course.

At FS Properties, we’re in the same boat as everyone else, as our various properties and developments around the Capital and the South East are subject to the market conditions. We bring you blogs like this one to keep you informed as to what’s going on in the UK market to allow you to make wiser investment decisions.

At FS properties, we own buildings across London, so we’re very much watching events unfold with everyone else. We create articles like this to help our readers make better decisions in the market and this one in particular should prove particularly helpful.

If you’d like to know more about us and what we do, visit us online at www.fsproperties.co.uk or if you’d like to speak to us about your property investment needs, simply fill in our contact form and we’ll get back to you as quickly as we can.