The return of the 95% mortgage – what’s available and how much they cost

With the chancellor announcing a government guarantee on 95% mortgages in his Budget, products have started hitting the market. Nicole Garcia Merida looks at what’s on offer.

As part of his pledge to turn “generation rent into generation buy”, chancellor Rishi Sunak announced a 95% mortgage guarantee in the March budget, due to launch in April. The scheme, designed to encourage lenders to start offering 95% mortgages again after almost every single one was withdrawn due to the pandemic, will see the government partially compensate lenders if homeowners fail to pay their mortgage.

According to Which?, using data from MoneyFacts, the number of 95% mortgages available to buyers fell from 391 at the start of 2020 to just three by the end as lenders sought to protect themselves as the pandemic saw many people’s incomes fall.

The new scheme is available on new-build and existing properties up to £600,000 and is open to first-time buyers and home movers alike, but second homes and buy-to-let properties are not allowed. are eligible. Yorkshire Building Society beat the government to it, announcing the relaunch of 95% mortgages through their mortgage arm, Accord Mortgages, in mid March. Major banks including Barclays, HSBC, Lloyds, NatWest and Santander have all committed to launching deals in April under the scheme, too.

Yorkshire Building Society’s loan comes with an interest rate of 3.99% and a £995 fee. It’s not available for flats or new-build houses, or for people who are currently furloughed. Chances are that, as the government’s scheme launches, more lenders will be releasing different loans, so it’s worth looking into which lender offers the rates that suit you the most. It’s also worth noting that the better rates will be available to those with more substantial deposits. But, if 95% mortgages are still of interest to you, or you’re just curious, here’s a look at what’s on offer now.

According to broker Habito, who launched 40 year fixed rate mortgages earlier this month, if you were buying a property priced at £100,000 with a mortgage of £95,000, (so a loan to value (LTV) of 95%) repaying with a fixed rate over 25 years you’d pay:

  • £472 a month with an initial rate of 3.44% with The Cambridge Building Society
  • £490 a month with an initial rate of 3.79% with Nationwide
  • £500 a month with an initial rate of 3.99% with Furness Building Society
  • £524 a month with an initial rate of 4.44% with the Teachers Building Society
  • £559 a month with an initial rate of 5.08% with Aldermore

The same search on comparethemarket also brings up the Loughborough Building Society’s mortgage, with a monthly payment of £493.61 and an initial rate of 3.85%.

In comparison, with a 20% deposit, monthly repayments for Nationwide – which offers the best rate according to Habito – would cost you £358, with an initial rate of 2.49%.

There are also far more lenders to choose from with higher deposits, but as we said more lenders should be coming out with 95% mortgages as the government scheme kicks in this month, and no doubt there will be some competition among them as to who can offer the lower rates.

The lowest rate is currently 3.44% with the Cambridge Building Society, but it should be pointed out that the cheapest 95% mortgage at the start of March 2020 was priced at 2.9%. So if a 95% mortgage is on the cards, it might be worth waiting for a little bit longer for lenders to regain confidence and lower their rates.

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