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A new government-backed mortgage scheme to help people with 5% deposits get on to the housing ladder is available to lenders from today (19 April 2021).

The scheme will help first time buyers or current homeowners secure a mortgage with just a 5% deposit to buy a house of up to £600,000 – providing an affordable route to homeownership.

The government will offer banks and building societies the guarantee they need to provide mortgages that cover the other 95%, subject to the usual mortgage affordability checks. The scheme is now available from lenders including Lloyds, Santander, Barclays and HSBC, with Virgin Money following next month.

Aaron Strutt, product director at Trinity Financial, says: "Since the government announced the scheme would be launched in the budget, mortgage lenders have started providing 5% deposit rates again because they felt more confident they would not be inundated with applications. It has taken the bigger providers longer to come back in. 

"If you are looking for a low deposit mortgage many of the lenders only provide five-year fixes, but there are some two-year deals available. The rates are priced around 4%, which is significantly higher than the larger deposit deals."

How does the guarantee work?

The government will compensate the mortgage lender for a portion of the net losses suffered in the event of repossession. The guarantee will apply down to 80% of the purchase value of the guaranteed property.

The guarantee will be valid for up to seven years after the mortgage is originated as evidence shows that loans are unlikely to default after such a period has elapsed.

How long will the 5% deposit scheme last? 

The government's homebuyer scheme is intended as a temporary measure. It will be open for new mortgage applications from April 2021 to December 2022, in line with the government’s view that the current scarcity of high loan-to-value lending is primarily a response to the pandemic rather than a symptom of a longer-term structural change in the mortgage market.

Call Trinity Financial on 020 7016 0790 to secure a mortgage or book a consultation

Source: Gov.uk website

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