5% Deposit Mortgage for Borrowers: Your Questions Answered by Satchells

It’s a well-known fact that homes in the UK are generally purchased using a loan from a mortgage lender and this loan is guaranteed against the property. as a rule, the purchaser is usually required to pay at least 10% of the home's value to secure the mortgage. The lender would then supply a loan amounting to the remaining 90%.

However, following the Spring 2021 budget, the government has introduced the new 5% deposit mortgage guarantee scheme. This programme encourages lenders to offer a 95% mortgage to buyers, with the government providing a guarantee against the additional risks associated.

This scheme is hugely beneficial, particularly for those looking to take their first steps on the property ladder.

Who is Eligible for the 5% Deposit Scheme?

Listening to our clients, we have discovered that there is a common misconception that this scheme is only available for first-time buyers. But this is not the case.

The 5% deposit scheme is open to first-time buyers and those who have previously owned a home. Providing they have the required funds and meet the lender's criteria they should be able to purchase a home under this new scheme.

Are There any Limitations of the 5% Deposit Mortgage?

• Firstly, the home purchased cannot be worth more than £600,000. For homes over this value, a larger deposit will generally be required.

• Additionally, this scheme is not available for new build homes. Although some lenders are flexible with this rule, most consider a new-build property to be one that was finalised within the past twelve months.

• It is also worth noting that the 5% deposit is only available for repayment mortgages. Those who require an interest-only plan will generally need a more significant initial payment.

When Is the Scheme Available?

The 5% deposit mortgage scheme began in April 2021 and will end in December 2022. The government has previously extended similar projects, however, there is currently nothing to indicate that will be the case here.

What are the Differences Between a Fixed Rate and a Variable Rate?

Lenders offer two types of mortgages as standard: fixed rate and variable rate.

A fixed rate mortgage is where your lender will offer you a period of guarantee that your repayments will not be affected by fluctuating interest rates. This period may be for two, five or even 10 years. Meaning, if the interest rate rises, you will not shoulder the burden in your monthly mortgage repayments. However, if the rate drops during your fixed period, you will not absorb the benefit. Lenders generally charge a fee if you need to exit the mortgage during this period.

Conversely, a variable rate can mean that your monthly repayments alter depending on the UK economy. Some lenders offer incentives for the risks attached to these mortgages, such as abolishing early repayment fees.

What if I Put Down a Higher Deposit?

Although a fantastic way to purchase property, mortgage rates tend to be significantly higher for those who can only put down a low deposit.

Providing a more significant initial outlay often means lenders will offer much more favourable rates, which can be more economical in the long term.

Remember, there are many lenders involved with this scheme, so competition is high. Thorough background research is essential to ensure you make the wisest decision.

At Satchells, our mortgage advisors provide a comprehensive search of the whole market. Unlike your bank, we are not limited to offering only specific products. This means we can source the very best mortgage for you.
Call us on 01462 410394 or email us at salesadmincentre@satchells.co.uk to chat with a member of our friendly and experienced team.