Owning a home is the dream for so many people, but I can confirm that as a renter (and a skint renter at that!), the thought of getting on the property ladder induces feelings of pure stress. Property is by no means cheap! And neither are all the fees that come with purchasing one. Gah!
Some slightly brighter news on the 2021 horizon though, when it comes to buying your own gaff - the recent budget announcement has introduced the idea of 95% mortgages... which means the prospect of putting down just a 5% deposit. The stamp duty holiday has also been extended, meaning that those purchasing property between now and the end of June could potentially save themselves thousands. It seems that ‘generation rent’ is finally being given the opportunity to become ‘generation buy’. And I'm here for it!
About 95% mortgages
The 95% mortgage scheme is set to launch to lenders from April, designed to incentivise lenders to make mortgages more accessible to first-time buyers and those on low incomes. It allows buyers and current homeowners to purchase properties up to £600,000 with just a 5% deposit.
You could theoretically borrow up to five times your salary, or combined salary if you’re buying with someone else! This opens the door to the property ladder for so many people - especially those who may have been affected financially by the pandemic.
Of course, you do need to pass a lender’s affordability checks before you can take out a 95% mortgage. They’ll look at your income, regular outgoings and any debt you might have. They’ll also check that you’d still be able to afford your mortgage payments if interest rates were to rise. If you are on furlough, you should still be able to go through the process fairly easily - you may just need a letter from your employer stating when you’re likely to be returning to work.
What’s the catch?
As with anything though, these 95% mortgages do come with downsides to be aware of. With big borrowings, come high-interest rates. For that reason, it’s usually a good idea to put down a bigger deposit so that you can get a cheaper mortgage deal. Of course, that’s not always an option for everyone, so it’s just a case of weighing out how much interest you’re comfortable dealing with.
Secondly, you might find it tricky to remortgage to a better rate later down the line when your initial mortgage deal ends. Remember, it can take a while to build up enough equity to qualify for those better deals.
Also, if house prices drop and the value of your home falls, you could potentially end up in negative equity. This is because you may owe more on your mortgage than your property is worth. Bigger deposits decrease the likelihood of this happening, so in turn, smaller deposits can put you more at risk.
Tempted?
I think the 95% mortgage scheme is the boost that people dreaming of purchasing their own home really need right now. Perhaps you were in a position to buy before COVID hit, but now you are in a more difficult financial situation.
This could be your opportunity! Make sure you enlist the help of a qualified mortgage advisor and broker to help you through the process and find the right lender for you - whether you are a first-time buyer or not. Not all lenders will be offering 95% mortgages, and a good advisor and broker will help you get the process right the first time and offload some of the stress and headaches.
Are you a home owner or do you rent? Do you have any personal experiences you'd be happy to share with others in the comments below?
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