The program, unveiled in the budget earlier this year, is made available to lenders starting Monday.
Aspiring homeowners looking for deposits as low as 5 percent will find more deals available from today as a new UK government-backed mortgage scheme rolls out.
Lloyds, Santander, Barclays HSBC UK and NatWest will be among the first to launch mortgages under the scheme, with Virgin Money next month.
The program, unveiled in the budget earlier this year, is made available to lenders starting Monday.
It comes after the number of low-deposit mortgages on the market declined dramatically at the start of the coronavirus pandemic, as lenders became much more cautious about offering “riskier” loans in a tough economy.
The new initiative will tackle this by helping first-time buyers or current homeowners secure a mortgage with just a 5% down payment to buy a home up to £ 600,000.
It will work by providing lenders with the collateral they need to provide mortgages that cover the remaining 95%, subject to the usual affordability checks.
The UK government said when asked, 69% of private renters who had considered a mortgage said they couldn’t find many deals with a low deposit.
Housing Secretary Robert Jenrick said: “For too many people, no matter how hard they work, property can seem out of reach. One of the biggest gaps in our country has been between those who can afford their own homes and those who cannot.
“This is why we are determined to do all we can to help hard-working families and potential first-time buyers move up the housing ladder in an easy and affordable way, in order to move forward this country.
“The new mortgage guarantee system that takes effect today will give providers the confidence to lend and help families and young people move up the real estate ladder without the prohibitive burden of a large deposit.”
In general, the program, which will be open for applications until December 31, 2022, can be used for new or existing properties.
Lenders will be able to purchase a government guarantee that would compensate them for part of their losses in the event of repossession.
The new system will reflect a “proven” initiative that has reinvigorated the mortgage market in the recent past.
In 2013, the government launched the Help to Buy mortgage guarantee program in response to a similar shortage of low deposit mortgages following the 2008 financial crisis.
The previous purchase assistance program also had the effect of stimulating competition in the 5 percent deposit bracket among lenders who were not part of the system.
They have increased their low deposit ranges in order to compete with lenders participating in the initiative.
By offering lenders the option of a government guarantee on 95% mortgages, many other products will become available, stimulating the industry, creating new jobs and helping people realize their dreams of owning their own homes.
Chancellor Rishi Sunak said: “Every new owner and mover supports jobs in the housing industry, but it can be difficult to save for a sufficient deposit, especially for first-time buyers.
“By giving lenders the option of a government guarantee on 95% mortgages, many other products will become available, stimulating the industry, creating new jobs and helping people realize their dreams of owning their own homes.”
The new scheme was launched at a time when home sellers are demanding record highs for properties.
Rightmove said on Monday that average asking prices for sellers hit a new record high of £ 327,797 in April, after jumping £ 6,733, or 2.1% month-on-month.
It’s great that this program is making a real difference by allowing first-time buyers who didn’t think they would have a chance to get a mortgage and movers to get the keys to their new home.
According to financial news site Moneyfacts, 5% deposit transactions have already started to return to the market in recent weeks, outside of the system.
Moneyfacts recently counted 34 transactions for borrowers with a 5% deposit available in April, down from just five in March.
This is still a far cry from the situation a year ago, when more than 160 transactions for borrowers with 5% deposits were available.
Miguel Sard, Managing Director of Home Buying and Ownership at NatWest, said: “A government-backed program will help segments of the market where homeownership has felt out of reach. these last months.”
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