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95% Mortgage Returns: What does it mean for potential homeowners?

Following Rishi Sunak’s announcement that the Government would introduce a mortgage guarantee scheme to help lenders bring back 95% mortgages, we are now seeing the first deals released to the public.
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Following Rishi Sunak’s announcement that the Government would introduce a mortgage guarantee scheme to help lenders bring back 95% mortgages, we are now seeing the first deals released to the public.

Barclays, Halifax, Lloyds, RBS and NatWest have now announced the terms of their guaranteed deals - with Virgin Money set to join them soon. Alongside them, several lenders have released their own 95% mortgages this month, quite separately from the new scheme.

During the COVID-19 pandemic 95% mortgages - which let you buy a home with just a 5% deposit - had been withdrawn by the major banks as banks cut back on riskier loans. But as the economy reopens and house prices continue to storm ahead, they are available again.

While the news may come as a relief for some first-time buyers, it’s essential that potential homeowners understand the implications of the 95% scheme before they decide whether to use it or not. 

James Andrews, senior personal finance editor at money.co.uk, said: “The first details of the rates charged by lenders using the Government’s 95% mortgage guarantee scheme have now been released - and they’re unimpressive.

"As things stand, the lowest 95% rate comes from a lender not using the scheme - Coventry Building Society’s 3.89%, 5-year deal.

“However, initial rates aren’t quite everything. Lenders using the scheme are offering deals with no arrangement fees - saving you around £1,000 - while the only two-year fixes for a 5% deposit available are the ones guaranteed by the Government.

“That means if you want a shorter-term deal, or have a smaller mortgage, you might well be better off using one of the government guaranteed mortgages from the likes of NatWest, Barclays or Halifax.

“There are also more restrictions on the non-government mortgage offerings - with some only applying to first-time buyers, for example.

“But before you consider applying for the scheme, it’s a good idea to compare the rate of interest on the 95% mortgage deal with that or a more standard 90% deal, as you may end up paying a huge amount more in the long term.

“On a £250,000 home even the best 95% two-year deal will cost you more than £5,000 more in monthly payments over the term than the best 90% deal, while you’d save more than £8,000 in interest choosing the cheapest five-year 90% deal - even after fees.”

“Overall, a staggering one in 10 first-time buyers end up with a purchase they regret, so before you make any decisions, check out the money.co.uk guide to first-time buyers, to ensure you don’t make any rash decisions.”

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Notes:

95% mortgage works out at £1,252 a month on a £250,000 home

90% mortgage works out at £1,084 a month on a £250,000 home

Over 60 months that's £10,080 more for a 95% mortgage