The appeal of homeownership has grown during the pandemic with many of us wanting a better quality of life. The Government knows this which is why they have launched their new mortgage guarantee scheme.
Buying property in St Albans has become even more desirable. COVID-19 has made people take stock and seek out places to live with easy access to open spaces. An increase in working from home is also fueling this drive.
So how does the new scheme work? Read on to find out.
Key Points of the New Scheme
We know that understanding all the information around mortgages and new Government schemes can be overwhelming.
Here are some of the most important points you need to know about the Government’s new
mortgage guarantee scheme:
- The scheme will run until at least the end of next year (2022)
- It is open to first-time buyers, home movers and previous homeowners
- You will need a 5% deposit and to pass the usual affordability checks
- The value of the new home can be up to £600,000
- You cannot use the scheme to buy a second home or buy-to-let property
- The scheme includes both existing and new build properties
- Interest-only mortgages are not available under the scheme
One thing to note when taking out a mortgage with a low deposit is that interest rates tend to be higher. You should always be sure that you can afford your monthly mortgage payments.
The Government Scheme Mitigates the Risk for Lenders
The scheme is to run until December 2022. Under the plan, home buyers, first-time or otherwise, have access to a 95% loan-to-value mortgage.
That means the loan is for 95% of the property's value. Buyers must put forward the other 5% as a deposit.
For the buyer, this kind of mortgage works as any other standard mortgage would. However, for the mortgage lender, the scheme gives an assurance that the government will bear some of the cost were the lender to end up losing money.
Let’s say you use the scheme to buy a property in St Albans and that you didn’t keep up with your mortgage payments. A repossession and sale might follow which doesn’t cover the amount the bank has lent you.
In this case, the Government would make up 95% of any losses to a lender made on the portion of the mortgage above 80% of the loan-to-value.
The idea is to encourage banks and building societies to lend more money against smaller deposits. This guarantee to the lenders will be valid for up to 7 years after the mortgage began.
Buying Property in St Albans, Who Can I Apply?
The Government and lenders are not restricting the scheme to first-time buyers. However, you must use the mortgage to buy your main residential home in the UK. You cannot use the scheme to buy second homes or buy-to-let properties.
If you’re looking to buy a home in St Albans, your new home can be worth up to £600,000.
You must have a deposit of 5% and you can only apply for repayment-type mortgages under the scheme. The plan does not permit Interest-only mortgages.
Whether you’re buying a property in St Albans or elsewhere in UK, you will have to pass the normal checks lenders make. These are there to make sure you can afford to make the repayments.
Which Lenders Are Participating in the New Government Scheme?
One of the key reasons the Government launched the scheme was to encourage more lenders to begin offering more 95% mortgages. This was something that had dried up during the pandemic.
So far, most of the big-name lenders are participating in the scheme. The hope is that other smaller lenders will follow and start offering 95% mortgages again.
It’s worth bearing in mind that the smaller the deposit you make, the higher interest rates tend to be. You should always shop around and check out which mortgage products are going to be right for you and offer the best value.
Buying A Home in St Albans
Getting onto the property ladder has become more difficult in recent years but the Government’s 95% mortgage guarantee scheme is there to help more people become homeowners.
If you’re thinking of buying a property in St Albans and would like further details on this new scheme, contact our expert team today on 01727 836561. Our sales team will be happy to answer any questions you may have and assist you in your St Albans property search. Alternatively, you can browse our available properties for sale here.