Let’s talk about the new 95% LTV mortgage scheme


The government has backed a new mortgage scheme which was introduced on the 19th April. The new scheme aims to turn “generation rent” into “generation buy” by helping make purchasing a home more affordable for aspiring homeowners. The pandemic has made it difficult for people to get onto the property ladder as it has caused economic uncertainty as well as a reduction in the availability of high Loan to Value (LTV) mortgages. Therefore, the new mortgage scheme was introduced to assist those with smaller deposits and encourage lenders to offer mortgages to these types of borrowers.

The new scheme is available through many high street lenders across the country, with a current end date of December 2022, however it could be extended. This will enable first time buyers or current homeowners to secure a mortgage with a 5% deposit and is available on homes that cost up to £600,000. However, it’s important to note that this scheme cannot be used to purchase a second home or a buy-to-let property. Currently many applications for 95% LTV mortgages, on new builds, are being rejected by banks, so if you’re looking to purchase a new build the Help to Buy equity loan scheme may be a better option for you. The reason some banks are rejecting applications for new builds (this can vary by lender) is down to the concern that they will not retain their value. Therefore, if they needed to be repossessed this could become a problem for the lender.

What does this mean for you? If we looked at a property worth £200,000, the amount of deposit required for a 90% LTV mortgage would be £20,000. Now with the 95% LTV mortgage scheme, a borrower would now only need £10,000!

Lenders now have the confidence to provide these mortgages as they have the option to purchase a guarantee from the government for up to seven years. This means that in the event of repossession, the lender will be reimbursed for a percentage of their losses.

Although the 95% LTV scheme could assist homebuyers struggling to save a large deposit, according to the BBC, analysts suggest that cheaper mortgages are available to those who have a 10% deposit. Buyers should also keep in mind that they will be paying interest on 95% of the house, rather than 90%, meaning that the interest paid could cost more overall.

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