Martin Lewis, Money Saving Expert, is well-known for his financial tips and tricks, and appearing on ITV’s This Morning, he took the time to unpack the Government’s new mortgage scheme. The 95 percent mortgage scheme was launched by Chancellor Rishi Sunak this month, after an announcement made in the annual Budget. The scheme is backed by the Government and will help individuals with a smaller five percent deposit to secure a mortgage deal.
“The fact it is under this scheme is neither hither nor thither to you – it helps the lenders and it doesn’t impact the borrower.
“I think there is a little bit of clever marketing hype going on out there, to get a mortgage guarantee scheme which is backed by the Government.
“It doesn’t actually give you anything extra. It’s just the fact it’s available is because it was underwritten by the Government.”
But an equally important issue to consider is whether a five percent deposit mortgage is actually a suitable option in the first place.
While its benefits of helping budding homeowners climb onto the property ladder cannot be denied, there may also be financial implications of securing such a deal.
Martin explained: “There are now a lot of five percent mortgages which are out there, but what I would say is that I’ve never been a fan of five percent deposit mortgages.
“What I would say though is that I’ve never been a fan of five percent deposit mortgages.
“You’ve only got a little bit of cash in there, and the truth is, these are still relatively expensive mortgages. The cheapest of these out there is a fix at 3.69 percent roughly with a £600 fee.
“But if you could push for a bigger deposit, your mortgage would be cheaper. In fact, the way it works is that every five percent bigger deposit you have up to 40 percent – which I know is huge – it becomes cheaper.
“So certainly, if you’re just scraping five percent and you’re desperate to get on the housing ladder, you’ll have to do one of these, or another five percent deposit mortgage.
“But I’d really urge you to push to get to that next barrier, that 10 percent level. Because the mortgage rates get much cheaper.”
Usually, lenders prefer higher deposits as low deposit mortgages are seen as a risk due to the fact people may fall into negative equity if house prices were to drop.
However, the new scheme is intended to entice major lenders to help more people with their property dreams.
All mortgages will be subject to the standard affordability checks required within the process.
Chancellor of the Exchequer Rishi Sunak commented on the launch of the new scheme earlier this week, saying: “Every new homeowner and mover supports jobs right across the housing sector, but saving for a big enough deposit can be hard, especially for first time buyers.
“By giving lenders the option of a Government guarantee on 95 percent mortgages, many more products will become available, boosting the sector, creating new jobs and helping people achieve their dream of owning their own home.”
Martin Lewis is the Founder and Chair of MoneySavingExpert.com. To join the 13 million people who get his free Money Tips weekly email, go to www.moneysavingexpert.com/latesttip