The Government is launching a new mortgage guarantee scheme. Increasing the number of 95% mortgages available for application. A great idea in theory, but there are serious considerations around if this scheme will work. Common questions we’ve heard so far:
Can the UK housebuilding market keep up with the demand created by this helping hand?
Will the global timber shortage have an effect on time frames?
Let’s explore the scheme in more detail.
The Government scheme and 95% Mortgages
The scheme, set to launch April 2021, provides lenders with a guarantee. If mortgage payments aren’t met, these will be covered by the government. As a result, the number of 95% mortgages has increased dramatically. The 95% mortgages will enable those without large deposits to get onto the property ladder. These mortgages will be available not just to first time buyers but anyone who qualifies. The scheme is also not restricted to only new build properties.
The coronavirus pandemic affected every area of the economy – mortgages included. The availability of 95% mortgages dropped from 273 in March 2020, to 3 in Feb 2021. Now with the end of the pandemic in sight, and with help from the government scheme, this has risen to 391 in March 2021. Lenders of the 95% mortgage include HSBC, Lloyds, Barclays, NatWest, Santander, with many more expected to join the list.
How it works
With a 5% deposit, applicants have a much better chance of being accepted for one of these mortgages: on houses up to the value of £600,000. It’s applied in addition to the stamp duty holiday, which has been extended until 30th June 2021. Until this date, those buying a home will pay no Stamp Duty Land Tax on residential properties up to the value of £500,000. However this changes in increments and there are different rules for first-time buyers. Visit https://www.gov.uk/stamp-duty-land-tax for more information.
Now seems like the perfect time to buy at home. If you’re a first time buyer, it’s much more appealing than renting, as rent payments can seem like throwing money away. Money spent on mortgage payments will go towards owning a property. Although those wishing to buy must also consider the wider checks. These include assessing income, outgoings, and credit score.
For example, a house priced at £180,000 would need a £9,000 deposit, and between 2 people would equal £4,500 each.
Will supply match demand?
It’s important to consider the wider implications of this Government scheme. Whether there is enough supply to cater to the high levels of demand. Basically, are there enough houses for those now able to get mortgages? Estimates have put the number of houses needed in the UK at 345,000. In 2019/20 the housing stock increased by 244,000 which is a 1% increase on the previous year. However this is still lower than the estimate needed.
Along with the UK timber shortage and the delays due to coronavirus, it’s difficult to see targets being met. Meaning lots of buyers with 95% mortgages, but no houses to buy.
Will the housing market remain stable?
There are also concerns the scheme was set up to artificially prop up the housing market, in response to the pandemic. Meaning that when these schemes are removed, house prices will fall. Many new homeowners could find themselves with negative equity. Essentially, they could owe more than the house is worth.
The positives of this scheme are clear. Those with access to small deposits have the chance of getting onto the property ladder. But as demand rises, so will prices. For those with even smaller deposits, it could mean being rejected because their deposits are now ‘too small’ for a 95% mortgage. An ironic result caused by the demand for the scheme which was set out to help.
Think Timber will continue to supply quality and cost-effective timber. We also aim to educate others on wider issues affecting our industry. To discuss how we can mitigate supply chain problems for your new build developments, get in touch.