Generation Rent to Generation Buy.
10 March 2021
In last week’s budget the Chancellor, Rishi Sunak, announced a new scheme aimed to help people to get on to the property ladder.
What is is?
The new scheme, called “The Mortgage Guarantee Scheme”, means that the government will underwrite some 95% loans, protecting the lender should anything go wrong.
This means you only need a 5% deposit in order to buy your home!
The scheme will be launched in April 2021 and many high street lenders have already shown their support with many more expected to join soon.
The headlines:
- Buy a home with only 5% deposit
- Purchase a property with a purchase value of up to £600k depending on your personal circumstances
- The loan must be to purchase your main residence. You can’t use the scheme for a ‘buy to let’ property.
- The loan must be a repayment mortgage
- The normal affordability checks must be satisfied.
A note of caution
On the surface of it this is great news for people buying a home in the UK. However, 5% equity in a property is relatively small. If house prices were to fall as they did in the 80s you could find yourself in negative equity. Negative equity is where you owe the lender more than the house is worth at that time.
Even in a situation like this all is not lost. If you can sit tight for a few years, the housing market has historically bounced back seeing a steady increase in house prices over the long term.
What’s next?
You don’t have long to take advantage of this guarantee as it only runs to December 2022.
If you are a first-time buyer and you are buying a new build you may find the Help to Buy scheme is more appropriate. Read about it the current Help to Buy Scheme in our guide.
A financial adviser will look at your particular set of circumstances and can advise the best scheme or mortgage to suit your personal situation.
