Why homebuyers should be wary of the new crop of 95% mortgages

The government has rolled out a new state-backed 95% loan-to-value mortgage scheme. But there are several drawbacks.

Estate Agent displaying a very small living room
If your estate agent looks thrilled, stay put
(Image credit: © Getty Images)

The government has rolled out its latest weapon in the battle to turn Generation Rent into Generation Buy. A new state-backed mortgage scheme, launched in mid-April, aims to help prospective home buyers with 5% deposits. First-time buyers and existing homeowners who are moving are eligible, up to a purchase value of £600,000 (second home and buy-to-let acquisitions are excluded).The help takes the form of a guarantee to the lender: the state will step in for the portion of the loan over 80% if the buyer defaults.

The latest state subsidy for the housing market aims to address a shortage of 95% loan-to-value (LTV) options. Data from comparison site Moneyfacts shows that there were 391 such mortgages on the market in March 2020, but one year later the figure had plunged to just five; the arrival of Covid-19 caused lenders to batten down the hatches. That number is now back on the rise courtesy of the loan scheme.

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Markets editor

Alex is an investment writer who has been contributing to MoneyWeek since 2015. He has been the magazine’s markets editor since 2019. 

Alex has a passion for demystifying the often arcane world of finance for a general readership. While financial media tends to focus compulsively on the latest trend, the best opportunities can lie forgotten elsewhere. 

He is especially interested in European equities – where his fluent French helps him to cover the continent’s largest bourse – and emerging markets, where his experience living in Beijing, and conversational Chinese, prove useful. 

Hailing from Leeds, he studied Philosophy, Politics and Economics at the University of Oxford. He also holds a Master of Public Health from the University of Manchester.