Low deposit mortgages available for first time buyers

First-time homebuyers are starting to see a surge in the number of ultra-low deposit deals available to them. 

The imminent arrival of the new UK Government-backed 5% deposit scheme appears to have been the catalyst for this big rise.

The initiative for properties with a purchase value of £600,000 or less will start this month and run until December 2022.

But Moneyfacts discovered this week that the number of deals for buyers with deposits of just 5% has increased dramatically in advance of the official launch.

There are now 34 of these offers, compared to just five at the start of March.

But interest rates are also on the way up for these 95% mortgages - the average rate for a two-year fix was 3.99% at the start of March, but jumped to 4.47% by April 1.

Several big high street names are among lenders who will take part in the new UK Government-backed 5% deposit scheme.

They include Lloyds, NatWest, Santander, Barclays, HSBC UK and Virgin Money.

More details about the offers available will be out soon – and Aberdein Considine's mortgage advisers will be able to access these deals.

High loan-to-value deals have been hard to come by in recent times, leaving many potential buyers unable to get on the property ladder.

The UK Government aim is to turn "generation rent" into "generation buy" - and the new project is expected to go some way to helping achieve this.

Under the initiative, the Government would compensate the mortgage lender for a portion of the net losses suffered in the event of a repossession.

The Government view is that a scarcity of high loan-to-value lending was primarily a response to the pandemic rather than a symptom of a longer-term structural change in the mortgage market.

The new scheme will help to ensure the mortgage market provides options for consumers with smaller deposits who also want a mortgage with the security of predictable repayments for a longer period.

For this reason, it will be a requirement that any lender participating in the scheme must offer a five-year fixed-rate product as part of their range of mortgages offered under the guarantee.

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