New 5% deposit mortgage scheme launches today – the banks with the best rates and fees revealed

New 5% deposit mortgage scheme launches today – the banks with the best rates and fees revealed

04/19/2021

MORE 5% deposit mortgages are available to first-time buyers from today as the Government launches its loan guarantee scheme.

Wannabe homeowners with a small deposit can apply for a 95% loan under the newest Government-backed programme.

Lenders providing the loans can buy a guarantee that will see the Government compensate them for a portion of their losses in the event of a repossession.

Today, Santander, Barclays, HSBC and NatWest are among the first to launch deals under the mortgage guarantee scheme, with Virgin Money following next month.

Lenders pulled almost all of these types of mortgage deals when the coronavirus crisis hit last year as they were seen as too risky.

But they are a lifeline for first-time buyers who struggle to save enough for a down payment on a property as wages fail to keep up with rising house prices.

What help is out there for first-time buyers?

GETTING on the property ladder can feel like a daunting task but there are schemes out there to help first-time buyers have their own home.

Help to Buy Isa – It's a tax-free savings account where for every £200 you save, the Government will add an extra £50. But there's a maximum limit of £3,000 which is paid to your solicitor when you move. These accounts have now closed to new applicants but those who already hold one have until November 2029 to use it.

Help to Buy equity loan – The Government will lend you up to 20% of the home's value – or 40% in London – after you've put down a 5% deposit. The loan is on top of a normal mortgage but it can only be used to buy a new build property.

Lifetime Isa – This is another Government scheme that gives anyone aged 18 to 39 the chance to save tax-free and get a bonus of up to £32,000 towards their first home. You can save up to £4,000 a year and the Government will add 25% on top.

Shared ownership – Co-owning with a housing association means you can buy a part of the property and pay rent on the remaining amount. You can buy anything from 25% to 75% of the property but you're restricted to specific ones.

Mortgage guarantee scheme – The scheme opens to new 95% mortgages from April 19 2021. Applicants can buy their first home with a 5% deposit, it's eligible for homes up to £600,000.

The scheme will slash the minimum amount first-time buyers need to purchase their own home, worth up to £600,000, in half.

It will run until December 31 2022 and can be used to purchase new and existing properties.

Housing Secretary Robert Jenrick said: "The new mortgage guarantee scheme which comes into effect today will give providers the confidence to lend and help families and young people get on the property ladder without the prohibitive burden of a large deposit."

However, Richard Donnel from Zoopla warns it is not a "mass market solution" and will mainly benefit buyers in the north of England and Scotland where property prices are typically lower.

He explained: "The scheme will have less impact for buyers in southern England where high house prices are a major barrier to being able to afford a 95% mortgages."

Here, we take you through which lenders are offering mortgages eligible for the programme:

Which lenders are offering deals under the scheme?

A number of high street lenders have today launched scores of mortgage deals under the scheme.

All buyers can fix their initial mortgage rate for at least five years if they choose to do so.

Remember though, only borrowers with the strongest credit history will be eligible for the top rates so what you're offered may be different to those outlined.

As well as comparing rates, borrowers should also take into account any extra fees when considering what deal to apply for.

These can be paid for upfront or added to the mortgage term, although the latter will mean you pay interest on the added cost.

Finance expert at Moneyfacts.co.uk Eleanor Williams recommends borrowers seek independent and professional advice when looking for a mortgage.

She said: "The best mortgage for their circumstances will come down to more than just the rate alone, and when considering a product it’s important to take into account the overall, true cost of the whole deal.

"This means balancing costs such as any fees, with any possible incentive packages the borrower may benefit from, against the initial rate."

Here are the deals currently available:

Barclays

  • See deals

Barclays mortgages under the scheme are available to self-employed and PAYE workers.

  • Two-year fixed-rate, no fees – 3.99%
  • Five-year fixed-rate, no fees – 4.09%

HSBC

  • See deals

Currently, the loans are capped at £500,000 for borrowers who take out a deal through a broker and £400,000 for direct customers.

The mortgages cannot be used for new build, shared ownership or shared equity scheme properties.

  • Two-year fixed-rate, £999 fee – 3.99%
  • Two-year fixed-rate, no fee – 4.29%
  • Five-year fixed-rate, £999 fee – 4.29%
  • Five-year fixed-rate, no fee – 4.49%

NatWest and RBS

  • See deals at NatWest and RBS

Available to first-time buyers and existing homeowners, as well as PAYE and self-employed workers.

  • Two-year fixed-rate, no fee – 3.09%
  • Five-year fixed-rate, no fee – 4.04%

Santander

  • See deals

Santander's deals cannot be used to buy a new build property.

  • Two-year fixed-rate, no fee – 3.99%
  • Five-year fixed rate, no fee – 4.09%

Lloyds Banking Group, which owns Lloyds, Halifax and Bank of Scotland, has said it will be signing up to the scheme but is yet to reveal its deals.

Meanwhile, TSB and Nationwide don't currently plan to take part.

Can I buy a home with a 5% deposit without the scheme?

Over the past few months, a handful of high street lenders have begun bringing back 5% deposit mortgages that are available outside the scheme.

These are open to applications from first-time buyers who pass the lender's affordability checks.

The rates on these mortgages are similar to those available under the scheme.

For example, Yorkshire Building Society launched a 5% deposit loan for first-time buyers at a rate of 3.99%, fixed for five years.

We've put together a round up of deals available for those with a small deposit.

There are deals available at a cheaper rate than those under the mortgage guarantee scheme but these require your family to put down money or act as a guarantee.

For example, Barclays' Springboard mortgage offers a five-year fix for a 5% deposit mortgage at a 3.45% rate with no fee.

It requires your family to transfer 10% of the property purchase price into a savings account as security on your mortgage.

While Family Building Society offers a 3.64% rate for a similar mortgage and a £599 fee, but it also requires your family to provide security.

The average two-year fix for a 5% deposit deal currently comes with a 4.19% rate, while the average rate for five-year fixes is at 4.2%.

First-time buyers can also get on the property ladder with a small deposit through the Help to Buy equity loan scheme.

Home buyers can now fix their mortgage for 40 years – but are they any good? We explain what you need to know.

Meanwhile, Metro Bank has launched new mortgages for buyers with poor credit scores.

We explain how to find the best mortgage for you, including lenders offering "no deposit" loans.

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