It’s not often that Boris Johnson speaks, but when he does, he makes sure there are soundbites aplenty. For all the talk of Covid-19, there was some refreshing news that came out of the virtual Conservative Party conference, where Mr. Johnson gave a speech to fellow party members – and it came in the form of 95% mortgages.
The introduction of mortgages with a 95% loan to value will help unlock plenty of demand in the housing market while enabling first-time buyers the chance to get on the property ladder. But how will it all work, and when does it come into effect?
Although there wasn’t any concrete information on timings and structure for the new lending criteria, there’s still plenty to unpack. Which is why we’ve put this article together detailing everything that we know about 95% mortgages so far.
So read on and find out what new mortgage lending rules could mean for buyers and sellers on the property market.
Why are 95% mortgages being brought in?
Lenders have been more frugal with their lending since the 2008 credit crunch, in an effort to avert any more problems similar to the financial crash 12 years ago. While mortgage lenders tightened the purse strings in good faith, many buyers believed the requirements went too far.
It’s only in the last few years that lending restrictions have eased somewhat. Yet, the Covid-19 pandemic saw lenders revert back to safety mode, as the uncertainty surrounding the coronavirus led to more lending restrictions.
Consequently, it’s now estimated that around two million people can’t afford a mortgage, even though they could comfortably pay the monthly repayments. That’s because lenders are typically asking for deposits of between 15 and 20 per cent.
These circumstances have led to more clamour for better lending options. And Boris Johnson believes that 95% mortgages hold the key to unlocking the UK housing market, getting millions of first-time buyers on the property ladder in the process.
How will 95% mortgages help buyers?
Rising house prices are the most significant issue facing many first-time buyers. In the last 20 years, property values have increased by a whopping 300%. This has forced many would-be buyers into the rental market.
Currently, 4.5 million households in the UK rent privately, and the figure is set to grow to a quarter of the housing market by 2021. The landscape has very much turned into Generation Rent, something the government wants to address.
With 95 per cent mortgages, Boris Johnson hopes to turn Generation Rent into Generation Buy as he gives more people access to mortgages. A 15% deposit on a £350,000 home would see a buyer stumping up £52,500.
However, a house buyer who only needs a five per cent mortgage would only need to pay a deposit of £17,500. Suddenly, the goal of saving £17,000-plus over a few years looks more attainable than needing £50k-plus.
How will 95% mortgages work?
All we have to go on so far is an announcement from the prime minister at the Conservative virtual conference. While there aren’t any concrete details, we will likely see the government guarantee some aspects of the loan.
This would mean they cover any losses made by the lender should the homeowner default on payments. These measures should incentivise lenders to offer five per cent mortgages to their customers, boosting the UK housing market in the process.
Speaking about the scheme, Boris Johnson said, “We need now to take forward one of the key proposals of our manifesto of 2019: giving young, first-time buyers the chance to take out a long-term, fixed-rate mortgage of up to 95% of the value of the home – vastly reducing the size of the deposit.”
What do 95% mortgages mean for me?
For a first-time buyer, or someone priced out of their dream home, a 95% mortgage could be the answer that you’re looking for. If you’re thinking of buying but want to know more about the mortgage options available, get in touch with one of our advisors. The service is completely free, and they will be happy to advise you on the best options available.